Applications of Generative AI in Banking and Finance: Opportunities, Risks, and Governance

Abstract

The research paper involves a thorough discussion of the how Generative AI (GenAI) has shifted the paradigm of banking and finance industry due to the use of artificial intelligence. In current times, the (GenAI) has become a new emerging force that hasn't been considered as a transformative one yet compared to the old methods of predictive analytics. This study analyzed the financial services ecosystem with its ability to provide new content, model scenarios, and personalized interactions. This research generalizes the exploration of GenAI as customer support services to other areas such as risk management, algorithmic trading, fraud detection, financial reporting, and regulation. This paper is based on the synthesis of the knowledge base on deep learning, multimodal systems, and ethical AI and creates a comprehensive system of GenAI application in finance. The important technologies forming the basis of GenAI including Large Language Models (LLMs), Generative Adversarial Networks (GANs), and diffusion models and how they are applied to financial services, including dynamic customer interaction and hyper-personalized creation of products to the creation of synthetic financial data to train and stress-test models. The article deals with such crucial implementation issues as the privacy of data, model hallucination, regulatory oversight, and ethical aspects of autonomous financial content creation. By comparing and contrasting and assessing the performance of GenAI over conventional rule-based systems (such as IVR and simple chatbots) in terms of flexibility, knowledge of context, and value-generating interactions, we demonstrate that GenAI outperforms them. Nevertheless, to integrate successfully, there should be strong governance structures and explainability systems as well as human AI collaboration models. The article finds that GenAI is not just a minor upgrade, but a complete rethinking of how financial services is offered, and has the capability to streamline the offer process, make it more accessible, and more personal and offer new aspects of risk, which need to be carefully managed by responsible innovation.