Regulation of Artificial Intelligence in FinTech Sector: Challenges and Opportunities in Indonesia (Domus Legalis Cogitatio.)

Summary

• Artificial intelligence research originated around 1950 and gained formal definition at the Dartmouth Conference organized by John McCarthy in 1956.p.1
• In August 2020, cybersecurity firm Clype reported that around 890,000 Kreditplus customer records were leaked and sold on Raidforums.p.6
• The Financial Services Authority introduced OJK Regulation No. 13/POJK.02/2018 to create a framework for fintech companies operating legally in Indonesia.p.6
• The Code of Conduct for Responsible and Trustworthy AI in the Financial Technology Industry was established by industry associations in early December 2023.p.8
• A cited study on AI grading algorithms demonstrated bias, showing that 31.9% of students received grades that differed from prior predictions.p.12
• The same study revealed disparity in AI outcomes, with 48.6% of private school students receiving an A or higher compared to 21.8% of comprehensive school students.p.12

Key insights

1. Indonesia currently lacks binding national legislation specifically dedicated to regulating artificial intelligence in the fintech sector.p.7
2. Current regulatory oversight of AI in Indonesian fintech primarily consists of non-binding ethical guidelines and industry codes of conduct.p.11
3. The complexity and opacity of AI decision algorithms make establishing legal accountability difficult when system errors occur.p.11
4. Integrating AI into fintech systems creates potential cybersecurity risks and customer data privacy concerns.p.13
5. Rigid automated AI decisions operating without human intervention can lead to inappropriate credit rejections or customer access blocks.p.13
6. AI implementations provide financial institutions with enhanced capabilities for fraud detection and financial risk evaluation.p.14
7. Utilizing AI in digital transactions helps reduce travel, operational, and transaction costs for both banks and customers.p.15