{"id":1683,"date":"2024-04-04T16:41:00","date_gmt":"2024-04-04T16:41:00","guid":{"rendered":"https:\/\/fezaa.com\/?p=1683"},"modified":"2025-04-02T16:43:05","modified_gmt":"2025-04-02T16:43:05","slug":"generative-ai-can-transform-how-banks-tackle-regulation-and-risk","status":"publish","type":"post","link":"https:\/\/fezaa.com\/?p=1683","title":{"rendered":"Generative AI can transform how banks tackle regulation and risk"},"content":{"rendered":"\n

Generative AI may just change the way financial institutions (FI) tackle regulatory compliance, risk assessments, and financial crime, says McKinsey & Co. However, FIs should remember to put guardrails around gen AI\u2019s use in an organization, the global management consulting firm said.<\/em><\/strong><\/p>\n\n\n\n

\u201cGen AI has the potential to revolutionize the way that banks manage risks over the next three to five years,\u201d McKinsey & Co. said in their latest report, \u201cHow generative AI can help banks manage risk and compliance,\u201d written by associate partner Rahul Agarwal; partner Andreas Kremer; senior partner Ida Kristensen; and partner Angela Luget.<\/p>\n\n\n\n

One major change it could bring about is it could free up FIs\u2019 risk professionals to pursue a shift left approach: It could allow functions to move away from task-oriented activities toward partnering with business lines on strategic risk prevention and having controls at the outset in new customer journeys.<\/p>\n\n\n\n

That, in turn, would free up risk professionals to advise businesses on new product development and strategic business decisions, explore emerging risk trends and scenarios, strengthen resilience, and improve risk and control processes proactively, McKinsey & Co. said.<\/p>\n\n\n\n

Emerging applications<\/strong><\/p>\n\n\n\n

One use for gen AI could be to create risk intelligence centers that serves all lines of defense: business and operations, the compliance and risk functions, and audits. Such a center would provide automated reporting, improved risk transparency, higher efficiency in risk-related decision making, and partial automation in drafting and updating policies and procedures to reflect changing regulatory requirements.<\/p>\n\n\n\n

Overall, McKinsey can see applications of gen AI across risk and compliance functions through three use case archetypes: first is through a virtual expert, where a user can ask a question and receive a generated summary answer, with the information and data coming from long-form documents and unstructured data with the bank.<\/p>\n\n\n\n

Gen Ai can also be used for manual process automation, where it will perform time consuming tasks. Gen AI can also be tasked with updating and translating old code or writing new code.<\/p>\n\n\n\n

For instance, McKinsey has developed a gen AI virtual expert that can provide tailored answers based on the firm\u2019s proprietary information and assets.<\/p>\n\n\n\n

\u201cBanks\u2019 risk functions and their stakeholders can develop similar tools that scan transactions with other banks, potential red flags, market news, asset prices, and more to influence risk decisions. These virtual experts can also collect data and evaluate climate risk assessments to answer counterparty questions,\u201d McKinsey noted.<\/p>\n\n\n\n

Regulatory compliance, credit risk<\/strong><\/p>\n\n\n\n

Two major use cases for gen AI are for better regulatory compliance and credit risk.<\/p>\n\n\n\n

\u201cEnterprises are using gen AI as a virtual regulatory and policy expert by training it to answer questions about regulations, company policies, and guidelines. The tech can also compare policies, regulations, and operating procedures,\u201d the report said. \u201cIt can automate checking of regulatory compliance and provide alerts for potential breaches.\u201d<\/p>\n\n\n\n

Gen AI also has the potential to generate suspicious-activity reports based on customers\u2019 and transaction information; or create and update customers\u2019 credit risk ratings based on their data.<\/p>\n\n\n\n

\u201cFinancial institutions are using the tech to generate credit risk reports and extract customer insights from credit memos. Gen AI can generate code to source and analyze credit data to gain a view into customers\u2019 risk profiles and generate default and loss probability estimates through models,\u201d McKinsey wrote.<\/p>\n\n\n\n

Winning strategies<\/strong><\/p>\n\n\n\n

McKinsey & Co. suggests developing a gen AI ecosystem with a prepared catalog of production-ready and reusable gen AI services and solutions. The catalog should be easily pluggable into a range of business scenarios and applications across the banking chain.<\/p>\n\n\n\n

Banks\u2019 gen AI services should also support hybrid-cloud deployments, enabling support for unstructured data, vector embedding, machine learning training, execution, and pre- and post-launch processing, it added.<\/p>\n\n\n\n

Banks are also advised to prepare a road map detailing the timeline for when various capabilities and solutions will be launched and scaled that aligns with the organization\u2019s broader business strategy.<\/p>\n\n\n\n

\u201cFor gen AI adoption by risk and compliance groups to be effective and responsible, it is critical that these groups understand the need for new risk management and controls, the importance of data and tech demands, and the new talent and operating-model requirements,\u201d McKinsey & Co. said.<\/p>\n","protected":false},"excerpt":{"rendered":"

Generative AI may just change the way financial institutions (FI) tackle regulatory compliance, risk assessments, and financial crime, says McKinsey … <\/p>\n","protected":false},"author":1,"featured_media":1684,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[15],"tags":[],"class_list":["post-1683","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-technology","latest_post"],"yoast_head":"\nGenerative AI can transform how banks tackle regulation and risk - FEZAA<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/fezaa.com\/?p=1683\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Generative AI can transform how banks tackle regulation and risk - FEZAA\" \/>\n<meta property=\"og:description\" content=\"Generative AI may just change the way financial institutions (FI) tackle regulatory compliance, risk assessments, and financial crime, says McKinsey …\" \/>\n<meta property=\"og:url\" content=\"https:\/\/fezaa.com\/?p=1683\" \/>\n<meta property=\"og:site_name\" content=\"FEZAA\" \/>\n<meta property=\"article:published_time\" content=\"2024-04-04T16:41:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2025-04-02T16:43:05+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/fezaa.com\/wp-content\/uploads\/2025\/04\/ai-in-banking-1.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1080\" \/>\n\t<meta property=\"og:image:height\" content=\"720\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"admin\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"admin\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/fezaa.com\/?p=1683\",\"url\":\"https:\/\/fezaa.com\/?p=1683\",\"name\":\"Generative AI can transform how banks tackle regulation and risk - 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