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Answer :
Final answer:
AI in financial institutions faces challenges in data security, maintaining legal transparency, and managing human factors in decision-making based on AI.
Explanation:
One significant challenge for AI in financial institutions is the threat of cybercrime and potential misuse of large volumes of data. AI has tremendous potential, but it also exposes institutions to vulnerabilities and risks involved in handling and securing massive amounts of data (Anderson and Rainie 2018). So, robust security measures and ethical guidelines are necessary to prevent misuse of AI.
Another challenge arises from the importance of transparency and corporate responsibility. The need for financial institutions to comply with complex laws around AI, including ensuring total legal transparency, could be expensive and require substantial resources. Moreover, the definition and expectations related to AI transparency need further clarification in legal contexts.
The final challenge is related to the intrinsic human factors in AI decision-making. Studies have shown that as the volume of operator decisions increases in AI-guided systems, the chance of making mistakes also increases (Bruno & Abrahão, 2012). Misinterpretation of AI alarms or notifications can lead to security breaches that can have severe consequences for financial institutions.
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