How banks can leverage generative AI to effectively support risk and compliance functions

The generative artificial intelligence (GenAI) hype machine has expanded across most industries, no less in banking and financial services. While generative AI can certainly assist with improving internal productivity and managing copious amounts of internal policies, procedures and client/employee documentation, additional uses of GenAI within risk and compliance management are emerging. Discover the ways financial institutions can develop and execute an effective approach for using GenAI in risk and compliance management, including emerging applications and use cases, to better your organization. 

Why is generative AI the next step for your financial institution?

These days, it’s essential for financial institutions to implement effective controls for GenAI’s use. It’s equally critical for organizations to develop and implement a GenAI strategy based on data sensitivity, operational risk, governance best practices and regulatory requirements. Without learning to harness the power of generative AI in finance, your organization will fall behind.

What are the benefits of generative AI for financial institutions?

GenAI can help financial institutions keep pace with continuous change, future-proof their businesses and outperform both traditional and new competitors. Specific to risk and compliance management, GenAI can assist in improving internal policy and procedure management, internal control management (e.g., risk and control self-assessment framework), third-party risk management (TPRM), anti-money laundering (AML) and know your customer (KYC) obligations.¹ 

Many organizations utilize established governance, risk management and compliance platforms (GRC) to control inventories and associated activities, such as emerging risk identification and control deficiencies. When the generative AI banking tool is appropriately applied, it can transform the digital landscape of the institution as a whole. 

Utilizing generative AI in banking can result in various benefits: 

• Improved predictive analytics and prioritized risk assessments
• Controlled testing patterns
• Identification of duplicative risk, key controls and compensating controls
• Uncovering risk, audit and control deficiencies (i.e., limitations and weaknesses)²

 
How to accelerate the power of adaptive banking with generative AI

Generative AI has many practical advantages for financial institutions and accelerates the goals of adaptive banking. By focusing on hyper-personalization, dynamic risk management and data synthesis, using generative AI in banking businesses can be transformative. 

Areas affected by generative AI in banking

Efficiency

Automate processes and decision-making to increase efficiencies and potentially reduce costs. This can include automated customer onboarding services, credit decision-making and straight-through payments processing.

Revenue

Gain insights on each customer’s unique financial behavior, preferences and needs through instances like personalized services and proactive offers or personalized financial advice with virtual assistants or agents.

Risk management

Improve risk management and regulatory compliance through fraud detection and prevention, automated KYC processes, transaction monitoring and credit risk assessment.

Sustainability

Advance sustainability objectives by creatively finding solutions such as automated digital audits, sustainability reporting and generation of corporate documentation. 

Resilience

Maximize uptime for critical systems and infrastructure with predictive maintenance measures, automated failover, risk assessment and forecasting and bank stress test simulations.

Building a generative AI strategy for financial institutions

For financial institutions pursuing an aggressive gen AI strategy, the benefits across their organizations are vast. Specific to risk and compliance, institutions are realizing substantial improvements across regulatory compliance, credit risk management, internal controls, documentation (i.e., policy) management and financial crime risk management.³ 

Ways generative AI in finance improves an institution:

• Regulatory compliance
• Credit risk
• Internal controls
• Documentation and policy
• Financial crime risk

How does generative AI in banking aid regulatory compliance?

Institutions are using GenAI to identify and evaluate pending legislation, proposed rules and regulatory exam priorities/enforcement actions more accurately and effectively. Additionally, compliance functions utilize generative AI in finance to automate the analysis of regulatory compliance and identify gaps and potential breaches.⁴  

How can generative AI in banking be used for credit risk management?

Generative AI in banking can assist in optimizing and accelerating banks’ credit life cycle by summarizing customer details to inform credit decisions. By analyzing factors such as credit history, income, employment status and source of funds, financial institutions can assess the creditworthiness of applicants, leading to more informed decisions and reduced default risk.⁵  

How does using generative AI in finance benefit internal controls?

Historically, the cyclical internal controls process was manual and defensive compared to automated and preventative. Financial institutions can leverage AI to more completely address rising regulatory scrutiny and emerging risk factors to understand the impact on their holistic risk appetite framework. Additionally, effectively utilizing generative AI in banking settings will allow financial institutions to expand their data sample sizes, improve testing accuracy, increase testing frequency and automate most components of data gathering and preparation activities.⁶  

How can generative AI in banking help manage documentation and policies?

Institutions find it challenging to maintain a centralized repository of updated internal and external policies, procedures, frameworks and regulatory guidance. Additionally, compliance functions are inundated with duplicative and time-consuming data requests that increase the likelihood of oversight. Generative AI in banking can align regulations with existing policies and procedures and proactively detect policy gaps based on changing regulations to minimize the risk of non-compliance.

What role does generative AI play in financial crime risk management?

Generative AI technology in finance is critical to collecting and analyzing customer information and transactional data to identify changing patterns and trends. AI can analyze data sets in more depth than merely remediating a suspicious alert – pulling data from customer information profiles, ongoing due diligence, sanctions and negative news sources to create a comprehensive KYC profile. Additionally, AI can automate and improve the accuracy of financial crime risk assessments.⁷   

Transforming the banking industry and financial services with generative AI

When utilized appropriately, generative AI will be transformative to the financial services and banking industries. From a risk mitigation and compliance perspective, the benefits of generative AI in finance far outweigh its risks. Institutions should ensure they have up-to-date policies, procedures and guidance related to the use and application of AI, particularly to safeguard against ever-changing laws and regulations.  

Building a generative AI strategy for financial institutions with CGI

Partnering with CGI means having a trusted partner and advisor to guide you through ever-changing requirements to support your compliance risk management programs. Financial institutions must ensure they have effective AI strategies to ensure regulatory requirements are met, both in the near and long term. Contact us to learn more about our AI and emerging technology solutions, capabilities and experience to help your institution in a competitive and evolving market.

¹ “Where AI will play an important role in governance, risk & compliance programs,” Thomson Reuters, Todd Ehret, https://www.thomsonreuters.com/en-us/posts/corporates/ai-governance-risk-compliance-programs/, 24 August 2023

² Ibid

³ “Five areas AI could transform compliance and risk management,” https://www.moodys.com/web/en/us/kyc/resources/insights/five-areas-ai-could-transform-compliance-and-risk-management.html, Moody’s, 31 October 2023

⁴ “How generative AI can help banks manage risk and compliance,” https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/how-generative-ai-can-help-banks-manage-risk-and-compliance, Rahul Agarwal, Andreas Kremer, Ida Kristensen, and Angela Luget, 1 March 2024

⁵ “Generative AI: The Missing Piece in Financial Services Industry?, ” https://www.finextra.com/blogposting/24089/generative-ai-the-missing-piece-in-financial-services-industry, 21 April 2023

⁶ “Modernizing risk management: How AI-powered automation is redefining audit and controls testing,” https://www.uipath.com/blog/industry-solutions/modernizing-risk-management-redefining-audit-and-controls-testing, Hincher, Bill. 20 February 2024

⁷ “Fighting Financial Crime With AI Is Not A Trend—It’s A Necessity” https://www.forbes.com/sites/forbestechcouncil/2024/02/07/fighting-financial-crime-with-ai-is-not-a-trend-its-a-necessity/?sh=2da296843e45, Twomey, Niall. 07 February 2024.