Blogs / The Role of Artificial Intelligence in Reducing Financial Risks and Its Challenges

The Role of Artificial Intelligence in Reducing Financial Risks and Its Challenges

August 13, 2024

نقش هوش مصنوعی در کاهش ریسک‌های مالی و چالش‌های پیش روی آن

Introduction

The adoption of artificial intelligence in the private sector is rapidly increasing. This technology offers financial managers opportunities to boost efficiency, cut costs, detect fraud, enhance services, and even forecast markets. However, deploying AI in finance—especially in areas such as financial stability and regulation—also introduces new challenges. This article examines how AI can help mitigate financial risks and explores its potential pitfalls.

Using AI for Monitoring and Cost Reduction

Financial managers operate in fiercely competitive markets and are turning to innovations like AI to oversee operations and improve financial efficiency. One of AI’s greatest benefits is its ability to automate processes with greater speed and accuracy than human labor. For example, in fraud detection and anti-money laundering, AI can analyze transaction data and identify suspicious patterns, thereby reducing financial risk and safeguarding both customers and institutions.

Challenges of AI in Finance

Despite its wide benefits, AI faces several challenges in finance. One key issue is AI’s capacity to accurately gauge the impact of economic policy shifts on financial markets. Although AI can process vast datasets, fully understanding the complex interplay between policy decisions and market behavior remains difficult. This gap can lead to erroneous recommendations and, in worst-case scenarios, undermined financial stability.

Regulatory Evaluation Criteria for Financial AI

To ensure AI is deployed safely and effectively in finance, regulators and institutions must apply clear evaluation criteria. Six critical questions are:
  1. Does the AI have access to sufficient and accurate data?
  2. Can it adapt to evolving regulatory changes?
  3. Are its objectives clearly defined?
  4. Are its decisions subject to review by qualified human overseers?
  5. Who bears responsibility if the AI makes errors?
  6. What are the potential consequences of AI mistakes?
Answering these questions thoroughly ensures AI serves as a tool for enhancing—rather than endangering—financial stability.

Challenges to Maintaining Financial Stability

Financial crises can impose enormous costs: the global financial crisis of 2008–2009, for instance, inflicted over \$20 trillion in losses. The intricate nature of modern finance and the difficulty of forecasting such crises complicate AI’s role in early warning. Incomplete or heterogeneous data may blind AI systems to looming threats, and many crises stem from unpredictable “black swan” events beyond any model’s foresight.

Setting AI Objectives in Crisis Conditions

Defining clear, flexible AI objectives during crises is essential. Rigid goals can lock AI into inappropriate responses as conditions evolve rapidly. Instead, AI systems must dynamically recalibrate their aims in real time to navigate unprecedented market upheavals.

Conclusion

The swift advancement of AI technologies presents vast opportunities to enhance efficiency and reduce financial risk. Yet these gains come with significant challenges that demand vigilant oversight and robust evaluation frameworks. Financial authorities and policymakers must ensure AI is responsibly implemented—and ready to be corrected—so it strengthens rather than destabilizes the financial system.