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This is a Literature Review study.

September 30, 2025

Artificial intelligence in financial risk management: A critical comparison of approaches and innovations — Part 2

Key Points

AI-driven models enhance precision and real-time monitoring in financial risk management, revolutionizing the industry.
The study examined risk management methods across credit, market, operational, and compliance risks, analyzing how AI improves these areas.
Comparative analysis of traditional methods to AI-enabled approaches reveals significant advancements in predictive capabilities.
Ethical and regulatory challenges, particularly the EU AI Act, must be addressed to fully leverage AI in finance, ensuring stability and resilience.

Abstract

Artificial intelligence (AI) is revolutionising financial risk management by providing innovative tools to address diverse challenges. In two papers of my series ‘Machine Finance’, the author critically examines the integration of AI technologies into the financial sector, emphasising their applications in managing risks such as credit, market, operational and compliance. It highlights the transformative potential of AI-driven models and analytics, which offer enhanced precision, real-time monitoring and robust predictive capabilities. Additionally, this study explores the ethical and regulatory challenges associated with AI adoption, particularly within frameworks like the European Union (EU) Artificial Intelligence Act (AI Act). By comparing traditional risk management methods with AI-enabled approaches, this paper aims to provide practical insights into the future of financial stability and resilience through advanced AI-driven strategies. This paper is also included in The Business & Management Collection which can be accessed at https://hstalks.com/business/.

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