An Investigation into the Applications, Impacts, and Challenges of Artificial Intelligence in Financial Markets, Banking Operations, and Risk Management Systems

Abstract

Artificial Intelligence (AI) is swiftly revolutionizing the financial industry, fundamentally changing the way financial institution’s function, evaluate risk, and make decisions. This study explores the uses, effects, and obstacles of AI across three essential areas: financial markets, banking operations, and risk management systems, utilizing secondary data from scholarly articles, industry reports, and regulatory assessments. A thorough literature review is performed to consolidate existing knowledge, pinpoint deficiencies, and critically analyze the equilibrium between the advantages of AI and the risks it entails. The primary findings indicate that AI improves predictive accuracy, operational efficiency, and fraud detection; however, it also presents considerable challenges, such as model opacity, data governance, systemic risk, and adherence to regulations. Advanced models can spot unusual patterns and prevent fraud more effectively than humans however the heavy use of customer data increases the risk of privacy violations and misuse. We propose a conceptual framework for the responsible and transparent implementation of AI and recommend future research avenues to tackle governance, interpret ability, resilience, and ethical considerations.