In the next five years, generative AI could fundamentally change financial institutions’ risk management by automating, accelerating, and enhancing everything from compliance to climate risk control.
Generative AI (gen AI) is poised to become a catalyst for the next wave of productivity gains across industries, with financial services very much among them. From modeling analytics to automating manual tasks to synthesizing unstructured content, the technology is already changing how banking functions operate, including how financial institutions manage risks and stay compliant with regulations.
It’s imperative for risk and compliance functions to put guardrails around gen AI’s use in an organization. However, the tech can help the functions themselves improve efficiency and effectiveness. In this article, we discuss how banks can build a flexible, powerful approach to using gen AI in risk and compliance management and identify some crucial topics that function leaders should consider.
Seizing the promise of gen AI
Gen AI has the potential to revolutionize the way that banks manage risks over the next three to five years. 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, often referred to as a “shift left” approach. 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.
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These advances could lead to the creation of AI- and gen-AI-powered risk intelligence centers that serve all lines of defense (LODs): 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. It would act as a reliable and efficient source of information, enabling risk managers to make informed decisions swiftly and accurately.
For instance, McKinsey has developed a gen AI virtual expert that can provide tailored answers based on the firm’s proprietary information and assets. Banks’ 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.
Finally, gen AI could facilitate better coordination between the first and second LODs in the organization while maintaining the governance structure across all three. The improved coordination would enable enhanced monitoring and control mechanisms, thereby strengthening the organization’s risk management framework.
Fuente de nota e imagen: https://www.mckinsey.com/capabilities/risk-and-resilience/our-insights/how-generative-ai-can-help-banks-manage-risk-and-compliance?stcr=04E8F363D1C64027B105982AD878B1A5&cid=other-eml-alt-mip-mck&hlkid=05e0cfd3079f453a988eee4d88681941&hctky=2269170&hdpid=1c90fdb2-a11c-4781-b1ee-18e7c2299d3d