Innovation Without Trust Is Not Progress

KUALA LUMPUR, July 8: Artificial intelligence may transform banking, but its long-term success will depend on whether financial institutions can preserve public trust, strengthen governance and remain accountable as technology becomes increasingly embedded in financial services, Bank Negara Malaysia Governor Datuk Seri Abdul Rasheed Ghaffour said.
Delivering the opening address at the inaugural AICB Nexus, which brought together the Malaysian Banking Conference and the Bank Audit Conference at the Kuala Lumpur Convention Centre, Abdul Rasheed said the future of finance could no longer be shaped through separate discussions on innovation, governance and assurance.
Instead, he said, these disciplines must evolve together if the financial system is to remain resilient and trusted.
“Innovation cannot succeed without governance. Governance cannot be effective without assurance. And neither can earn public trust without the other.”
He said artificial intelligence was already reshaping financial services by improving fraud detection, credit and insurance assessments, compliance, risk management and customer service.
While much of the conversation around AI focused on how quickly financial institutions could adopt the technology, Abdul Rasheed said the more important question was whether it would strengthen trust and reinforce confidence in the financial system.
“AI may transform finance. But trust will determine whether that transformation endures.”
He described trust as the foundation of banking, saying customers must continue to believe their savings were safe, capital would be allocated responsibly and financial institutions remained credible regardless of technological change.
“Innovation without trust is not progress.”

Innovation must serve a purpose

Abdul Rasheed said AI adoption was accelerating across Malaysia’s financial sector, with more than 70% of financial service providers already implementing at least one AI application. Industry feedback also showed AI was being adopted primarily to improve efficiency, productivity and risk management.
However, he said the next stage of AI development should move beyond improving individual institutions and instead address problems affecting the wider financial ecosystem.
He pointed to scams, fraud and cybercrime as examples where collaboration between banks, regulators, law enforcement agencies and payment providers was more important than competition.
“Trust is not built by one institution, but by an ecosystem working as one.”
He said financial institutions should continue competing where markets demanded it but collaborate where the broader public interest required collective action.

Boards must lead AI governance

The Governor warned that AI was not simply a technology issue but a governance challenge requiring greater leadership oversight.
As AI models become increasingly powerful and complex, he said boards and senior management must confront difficult questions around accountability, fairness and explainability.
“These are not technology questions alone. They are leadership questions.”
He said responsibility for decisions could never be delegated entirely to algorithms, regardless of how advanced AI systems become.
“While machines may generate insights and support decisions, accountability must remain with those entrusted to govern and lead. Responsibility cannot be delegated to an algorithm.”
Abdul Rasheed said AI should no longer sit on the margins of organisations as an information technology project.
“It belongs firmly on the board agenda.”
He added that decisions about AI should be linked to business outcomes, governance, capital allocation and clearly defined risk appetite rather than treated as standalone technology investments.

The role of audit is changing

The Governor also highlighted the growing importance of internal audit, risk and compliance professionals as AI systems become more autonomous and difficult to interpret.
Rather than simply confirming whether controls exist, he said assurance functions would increasingly be expected to explain AI outcomes, challenge automated decisions and ensure accountability remained intact.
“It is no longer sufficient to confirm that controls exist. The question is whether institutions can explain outcomes, challenge decisions, and retain accountability in increasingly opaque systems.”
He said assurance would become more difficult as AI systems evolved, making the work of internal auditors even more critical to maintaining confidence in the financial system.

Investing in people

Beyond technology, Abdul Rasheed said the future of AI would ultimately depend on people rather than machines.
He said financial institutions needed professionals with technical expertise, governance capability and critical judgement, while also investing in reskilling employees as AI transformed the workplace.
“The future of AI will be shaped less by technology than by talent.”
He noted that roles across the banking sector were already changing and urged financial institutions to support employees through the transition.
“Preparing the workforce for this transition is not optional; it is a strategic imperative.”
Abdul Rasheed said the Asian Institute of Chartered Bankers’ Future Skills Framework would play an important role in equipping banking professionals with the AI literacy, ethical judgement and governance capabilities needed for the future.

Supporting responsible innovation

Abdul Rasheed said Bank Negara Malaysia would continue encouraging innovation while maintaining public confidence through a regulatory approach based on proportionality, parity and technology neutrality.
He said the central bank would work closely with industry by providing clearer regulatory expectations, supporting responsible experimentation and investing in shared infrastructure.
The Governor also highlighted the development of Malaysia’s Open Finance framework and the Digital Assets Innovation Hub as examples of initiatives designed to support innovation while strengthening trust across the financial sector.
Concluding his address, Abdul Rasheed said technological progress should ultimately be judged by whether it improved lives, strengthened resilience and served society.
“The future of finance will not be defined by how fast and sophisticated our technology is. It will be defined by whether that technology strengthens trust, broadens opportunity and serves society well.”
He said maintaining public trust would remain the shared responsibility of regulators, financial institutions and industry professionals as AI reshaped banking in the years ahead.