Artificial Intelligence in China's Banking Sector: Promises, Perils, and Regulation

Artificial Intelligence (AI) is rapidly transforming the banking sector in China. While it has spurred financial innovation, enhanced operational efficiency, and reduced transaction costs to some extent, it has also introduced new risks and complex regulatory challenges. Drawing on first-hand interviews with regulators and practitioners, this article examines the role of regulation and underscores the importance of regulatory tools, especially RegTech and SupTech, in strengthening risk management for AI-enabled banking. Given the high uncertainty and new risks posed by AI, this article argues that regulators should adopt a riskbased and adaptive framework for AI in banking. Such an approach can begin with high-level principles or codes issued as soft law, translate these into practical methods and toolkits through industry pilot programs, handbooks and guidelines, and ultimately evolve into hard law with legal effect (such as Rules or Regulations on AI Risk Management). To balance financial stability with innovation in a rapidly evolving banking sector, the regulatory framework should be technology-neutral, proportionate to use-case risk, embedded within existing risk regimes, and refined through close consultation with financial institutions and evidence from practice.