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The Impact of Gen AI on Risk Management Practices in the Financial Services Industry



The image is an author header of Custodia's Head of Regulatory Affairs & Compliance, Dr Nathalie Aubry-Stacey. The text describes the impact of the Gen AI on risk management practices.

In the era of Gen AI, risk management practices in the financial services industry need to be ready for significant evolution. The integration of AI technologies necessitates an audit of existing compliance frameworks to exploit their full potential while mitigating inherent and future risks. More importantly financial institutions will need to invest in robust data governance frameworks to ensure data quality and security, which are prerequisites for effective AI deployment.


Gen AI's effectiveness relies on the quality and structure of the data it processes. AI systems require clean, centralized, and normalized data to learn and operate effectively, ultimately producing valuable insights. This is where the services provided by third-parties like Custodia CC1 become critical. One key feature of CC1 is confirming that the data fed into AI systems through our API actually enhances the decision-making capabilities of these systems. By centralising data, we also reduce the complexity AI systems face in accessing and interpreting data from multiple sources. Moreover, normalising data and adhering to a consistent format, will help for AI technologies to analyse and derive insights.


The infographic provides a definition of the term Gen AI that reads: Gen AI or Generative Artificial Intelligence is a type of AI that creates new content (like text, images, or music) by learning from large data sets. It uses algorithms to mimic styles and structures, producing original outputs tailored to specific prompts, showcasing its ability to innovate and generate creatively.


As the integration of Gen AI continues to permeate the financial services sector, it represents a transformative shift in how institutions monitor and manage risks. The practical applications of Gen AI in surveillance are vast and can substantially enhance both efficiency and effectiveness in regulatory compliance and fraud detection, but risk management must adapt by:



Enhancing Data Governance 

Financial institutions will need to invest in robust data governance frameworks to ensure data quality and security, which are prerequisites for effective AI deployment.

Developing AI-ready Infrastructure

Implementing Advanced Analytics 

Increasing Transparency and Regulatory Explainability


In conclusion, as GenAI reshapes the landscape of financial services, risk management practices must evolve accordingly. The transition will require a holistic approach where data quality, advanced AI capabilities, and new regulatory frameworks converge to create a resilient, AI-enabled risk management ecosystem. Custodia’s role, as a third-party, is to enable the foundational data requirements to be met, enabling financial institutions to fully leverage AI for risk management and beyond. Follow the link to discover more about CC1.




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