Ethical and Regulatory Challenges of AI in Finance

Abstract

The recent accelerated incorporation of artificial intelligence (AI) in the financial industry has revolutionized the fundamental operations in determining creditworthiness, fraud detection, algorithmic trading and customer interaction. Although such applications can result in considerable efficiency, accuracy, and scalability, they also present difficult ethical and regulatory issues that should be criticized closely. This paper focuses on the ethical issues that are entailed in AI-based financial systems, such as algorithmic discrimination, absence of explainability and transparency, threats to the privacy of personal data, and whether automated decisions are accountable. Concurrently, it evaluates regulatory problems, which are posed due to the constraints of the current financial and data protection standards, cross-jurisdictional discrepancies, and the impossibility of regulating unclear and evolving AI models. The abstract displays the conflict between the promotion of innovation and consumer protection, financial stability, and trust on the part of the population. By summarizing the existing controversies and regulation strategies, the paper highlights the importance of powerful codes of ethics, dynamic regulation frameworks, and proper oversight systems to make AI implementation in finance fair, transparent, and socially accountable.