The banking industry stands at the edge of a transformative revolution powered by artificial intelligence (AI). While previous technological advancements, like cloud transformation, often promised rapid change and efficiencies those arrived slower than expected. As AI reshapes financial services, the crucial questions for me are:
• How can banks create value for customers like you and I?
• How can banks achieve a meaningful return on investment (ROI) while using AI responsibly?
• How can regulation best support this?
Revolution Beyond Hype: Gradual Yet Lasting Transformation
History has taught us that technological revolutions often unfold at a slower pace than anticipated but have a far greater impact than initially imagined. Consider online shopping and streaming services, they didn’t become mainstream overnight, but their eventual adoption fundamentally changed consumer behaviour.
AI will take a little longer in many respects to really change the world in the ways we imagine today. While advancements are happening rapidly, true transformation requires time for businesses, regulatory bodies, and consumers to adapt. Building the necessary infrastructure, ensuring ethical safeguards, and developing practical applications all take time.
It’s the ecosystem’s responsibility to strike a balance between innovation and regulation. Supporting innovation doesn’t mean reducing regulatory oversight; it means fostering an environment where businesses can experiment and grow responsibly while protecting consumers and upholding ethical standards. As digital threats grow more sophisticated, the ecosystem must ensure that regulation goes hand in hand with innovation. Premature regulation could stifle progress, while thoughtful regulation can enhance security and trust.
1. Establishing a Stable Foundation
Before investing heavily in AI-driven innovation, businesses must ensure that their existing processes are robust, secure, and efficient. Regulation plays a key role by setting minimum compliance standards and highlighting best practices to encourage innovation without stifling progress.
You don’t need to use AI for everything. For example, in 2025 AI is actively used to transform the back-office functions, like contact centres, or make the existing manual processes more efficient. Beyond 2025 the focus will shift on using AI for solutions that are too complex for humans to handle effectively, such as tasks involving massive data analysis, predictive modelling, or real-time decision-making.
AI doesn’t have to stay big and costly—just like storage and computing once did, costs will drop with innovation. This shift will make AI more transformative, accessible, and powerful for businesses.
However, AI implementation should always be guided by a clear business case and ROI analysis. Without a well-defined understanding of the value AI will deliver, companies risk wasting resources on ineffective initiatives.
2. Addressing Ethical Challenges and AI Accountability
The rise of AI brings significant ethical concerns, including bias, privacy issues, and accountability for errors. Recognizing societal biases — which often manifest in data, including the synthetic data —is crucial for responsible AI use. Poor-quality data can lead to flawed applications and damage a bank’s reputation.
Just as banks prepare for outages and cyber-attacks, they must anticipate and mitigate AI failures. Flawed AI systems can lead to biased decisions, privacy breaches, or service disruptions. This is a key consideration as part of operational resilience or DORA regulations.
Building AI with the view that it can and will fail is crucial. Banks must prioritize customer experience, even when AI makes mistakes, by having contingency plans in place and ensuring the critical services continue to operate. Customer always comes first. It is key to build AI with safety nets, contingency plans, and keep the human in the loop.
Furthermore, with the rise of AI-driven threats like deepfakes and voice cloning to by-pass security, awareness and collective action are more critical than ever. Alarmingly, there are currently no laws criminalizing harmful deepfakes, highlighting the urgent need for legislative action.
3. Building Ethical AI Professionals
Regulation can support nurturing of talent by requesting the highest ethical standards from professionals operating AI. Just as unqualified doctors wouldn’t be allowed to operate on patients, untrained AI developers shouldn’t shape the digital future.
With the rise of AI, we have a unique opportunity to ensure that technology becomes a true equalizer – accessible to everyone. The banks and technology companies should invest in developing a skilled workforce, reskilling older professionals, supporting the growth of women in technology, nurturing talent across all age groups and those who have disabilities.
Early intervention is key. For example, young girls should have opportunities to engage with technology from an early age, supported by incubators and mentorship programs as they grow.
Collaboration and Innovation for a Sustainable Future
Regulation plays a vital role in building public trust and fostering sustainable growth in AI. As the technology continues to evolve, collaboration across the ecosystem is crucial to unlocking new opportunities while minimizing the risk of regulation stifling innovation.
Within banks, aligning business and technology strategies is essential to delivering customer value and achieving the desired return on investment (ROI). Close collaboration across key stakeholders, such as the Chief Information Officer (CIO) and Chief Risk Officer (CRO), early in the transformation process ensures a practical, cost-efficient approach that meets regulatory requirements while driving meaningful progress.
By focusing on customer value, addressing ethical challenges, and fostering a skilled workforce, banks can harness AI’s potential while safeguarding trust and reputation. The future of banking isn’t just about adopting the latest technology—it’s about building a sustainable, customer-centric, and ethical ecosystem where AI and regulation work together to drive progress.
For further information, contact Alina Timofeeva – a.timofeeva.lse@gmail.com
