KUALA LUMPUR: More than half of the banking and financial institutions in Malaysia engage with regulators reactively, or not at all, when it comes to all things artificial intelligence (AI).
A report jointly conducted by the Asian Institute of Chartered Bankers (AICB) and technology research firm Ecosystem revealed that 56% of leaders from local financial institutions do not have strong industry engagement, highlighting the significant scope for a more collaborative environment in the development of AI standards.
Ecosystem vice-president of Industry Insights Sash Mukherjee said the current generation of bank leaders has always had a set of rules or regulations from regulators which worked then because technology was not moving as fast.
“So now, I think many have not geared up to the fact that the industry needs to be more collaborative and open.
“Having said that, another way is to look at the 44% of leaders that do have close engagement with regulators,” she said during the media roundtable at the AICB Nexus 2026 Conference here yesterday.
According to Sash, Bank Negara Malaysia (BNM) has been looking at many aspects, including model risk management.
“Many regulators might only look at certain elements, but regulators like BNM have set things in motion by speaking with the industry and getting feedback from them,” she said.
Sash added that for every financial institution, there are already internal sets of governance and frameworks to follow, so further collaboration with regulators may not be as simple as it sounds.
On why there is still a gap in the collaborative sense, AMMB Holdings Bhd
(AmBank Group) group chief information security officer Malini Kanesamoorthy said there is a fear because the industry is already so heavily regulated.
She explained that the industry could feel unprepared or question if AI is needed.
“It does boil down to the mindset shift, as well as having the drive to compete with your peers,” she said.
“At AmBank Group, what is important is, what we have in practice can be scalable and transformative in accordance with the digital technology landscape threats.”
Malini added currently, there are already so many regulatory directives being issued on a weekly basis from regulators.
However, she noted that this should not hinder financial institutions from being competitive.
The report also highlighted the gap in governance frameworks that are reflected in day-to-day use.
Sash said many financial institutions are still working through many of the practical questions, like levels of transparency expected, how emerging risks should be classified and AI within third-party platforms.
“A total of 41% of respondents believe there is a clear understanding across teams on how AI should be applied responsibly, while 57% are either unsure or agree that employees sometimes use AI tools without formal organisational approval, deployment, or validation.
“This is why it is important for everyone to be on the same page, from the top down and advocating for AI,” she said.
Meanwhile, Finance Minister II Datuk Seri Amir Hamzah Azizan said banks are not bystanders in Malaysia’s economic transformation, but rather the transmission system through which reform becomes investment, and investment becomes national capability.
According to him, AI has already begun to reshape finance – it is used in credit assessment, fraud detection, customer engagement and market surveillance, among others.
“But we should also be clear-eyed.
“AI is a tool – powerful, transformative, but ultimately dependent on human judgement and oversight.
“The more intelligent the ledger becomes, the more vigilant we must be in safeguarding it against emerging risks and vulnerabilities,” he said.
Amir Hamzah said in BNM’s 2025 annual report that Malaysians lost RM2.8bil in financial scams in 2024, of which 95% were authorised transactions.
“They were deceived and willingly transferred money. This is not a technology failure. It is a trust failure.
“And it tells us something crucial: the greatest risk in an AI-enabled financial system is not necessarily the machine making wrong decisions.
“It is the human being manipulated into making the wrong one,” he cautioned.
With that, he said the AI Governance Framework developed by AICB’s Chief Risk Officers’ Forum – with BNM’s support and the endorsement of the Association of Banks in Malaysia is the kind of industry-led initiative needed.
“It is not the government telling banks how to use AI. It is the banking profession governing itself.
“That is how trust is built from within a system, not merely imposed upon it.”
Also present at the event was BNM governor Datuk Sri Abdul Rasheed Ghaffour, who said the first priority for financial institutions right now was purposeful innovation.
He reckoned that innovation in any situation should be pursued with purpose.
“Today, more than 70% of Malaysian financial service providers have implemented at least one AI application.
“Adoption is concentrating where there are opportunities for efficiency gains, productivity gains, and better risk management.
“Thus far, financial institutions have focused on use cases that deliver internal value.
“The opportunity before us now is to move beyond this institution-centric lens,” he noted.
Furthermore, Abdul Rasheed opined that the role of professional judgement has become even more important as AI is more deeply embedded into banks.
“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.
“For boards and senior management, this has profound implications: AI should not sit at the margins as a technology project.
“It belongs firmly on the board agenda.
“The responsibility of leadership is to ensure that innovation strengthens, rather than weakens, trust,” he said.
To those in risk management, he said assurance will only become harder as they strive to remain fair and constructive.
“The question is whether institutions can explain outcomes, challenge decisions, and retain accountability in increasingly opaque systems.”
