AI Innovation, Banking, Member Exclusive

Why banks can’t policy their way out of shadow AI

  • Banks are cracking down on "shadow AI" with stricter policies, but experts say that's treating the wrong problem entirely.
  • Institutions buy AI tools before mapping the workflows they're meant to support and employees notice when the sanctioned option can't keep up.
close

Email a Friend

Why banks can’t policy their way out of shadow AI

Employees at financial institutions are using AI tools their employers never approved for tasks that touch sensitive customer data.  This unsanctioned use of AI, often called shadow AI, is not a toothless problem. In May 2026, an employee at Pennsylvania-based CB Financial Services, parent company of Community Bank, uploaded a file containing customer names, Social Security numbers, and dates of birth into an unauthorized AI application while preparing a presentation. The employee bypassed the bank’s approved AI tool for a personal account on a personal device.  The bank caught the exposure quickly enough to get the data deleted before it could be used to train the vendor’s model. Notably, the bank already offered a sanctioned AI tool. The employee simply chose not to use it.  The instinct inside most banks and credit unions is to treat this as a policy failure and respond with tighter restrictions, more monitoring, and firmer language in the acceptable-use policy. But that response gets the diagnosis wrong, according to Corey Gross, VP and Head of Data & AI at Q2 Holdings. “When employees bypass a sanctioned tool, they’re telling leadership teams that the approved option isn’t getting the job done.” In his view, the root cause sits upstream of governance entirely: institutions are buying AI tools without first understanding the workflows those tools are meant to support. Instead of writing stricter acceptable-use policies, Gross suggests the more useful question is why employees felt they needed to go around the tool they were given in the first place. “It’s rarely a governance or compliance issue,” he said.

The distinction sounds subtle, but it points to a different set of priorities for any bank trying to scale AI responsibly. It suggests that starting with the design of the work itself is more critical than the framing of the rules that surround it.

Workflow redesign has to come before the AI rollout


0 comments on “Why banks can’t policy their way out of shadow AI”

10-Q, Member Exclusive

Forget the earnings. Watch where these fintechs are placing their bets.

  • Chime, Block, and Circle each used the quarter to make the case for where fintech’s next moat will be built.
  • Chime is finding a lending advantage in the direct-deposit relationship, Block is rebuilding around AI, and Circle is betting that the bigger opportunity lies in owning the infrastructure beneath stablecoins.
Sara Khairi | August 10, 2026
Member Exclusive, Opinion

Have we mistaken ChatGPT-like LLMs and AI agents for the whole transformation?

  • The industry is increasingly asking: What needs to surround AI before we can trust it?
  • AI needs four things to work well in financial services: data, context, governance, and human oversight. The first two sharpen its intelligence; the latter two make it trustworthy.
Sara Khairi | August 07, 2026
Banking, Member Exclusive

How banks have stopped thinking in products and started thinking in customer journeys

  • As banks weave AI into their customer experiences, many are looking for ways to translate years of customer data into a more complete picture of each customer's needs and context.
  • The difference isn't the data itself, but how well a bank makes sense of a customer's context and goals and builds the right response around that.
Sara Khairi | August 06, 2026
Artificial Intelligence, Banking, Data, Member Exclusive

Before chasing AI, Bank of America wants banks to fix their data first

  • Bank of America has resisted the urge to use AI as a shortcut to efficiency, a temptation that has driven many companies into expensive and poorly conceived AI investments.
  • EricaAssist offers the clearest example of Bank of America's data-first AI strategy, with the bank recently enhancing the employee assistant by integrating Gen AI capabilities.
Javarya Kamran | August 06, 2026
AI Innovation, Member Exclusive, Payments, Podcasts

Mastercard’s Marc Pettican on the road to a $17.4 trillion virtual card market

  • Mastercard projects virtual card spend will hit $17.4 trillion by 2029, and Marc Pettican explains what's fueling that growth.
  • He details Mastercard's push into agentic payments, embedded finance, and a multi-rail strategy spanning cards, account-to-account, and stablecoins.
Zack Miller | August 05, 2026
More Articles