Generative Artificial Intelligence in Financial Services: Opportunities, Challenges, and Cyberthreats

Generative artificial intelligence (GAI) is transforming the financial services sector (FSS), offering innovative solutions and equipping the industry with cutting-edge tools to drive value creation and operational efficiency. While the sector-specific benefits of GAI technology are substantial, effectively harnessing these opportunities depends on addressing key institutional challenges, including systemic consequences, ethical concerns, and security and privacy risks. The highly regulated FSS is one of the critical infrastructures that plays a vital role in a country's economic stability and national security, with cyberthreats posing significant risk to both. We assess the economic benefits of GAI technology, identify institutional challenges associated with its adoption, examine key regulatory initiatives, and outline a risk-mitigation framework. Our proposed solution to mitigate institutional challenges is twofold: 1) actionable institutional risk management safeguards, and 2) a baseline safety net for GAI implementation in the financial services sector.