Wall Street banks warn investors about new AI-related risks

Wall Street banks, including Goldman Sachs, Citigroup, and JPMorgan Chase, have warned investors about new risks from the increasing AI adoption, such as software hallucinations, employee-morale issues, use by

Concerns raised by Wall Street banks regarding AI adoption

Banks acknowledged AI-related risks in their annual reports from previous years. However, new concerns arise as the financial sector increasingly embraces AI via its own software or third-party offerings.

JPMorgan’s 2024 10-K notes that AI could cause workforce displacement that has the potential to affect morale and retention and increase competition for hiring employees withing the necessary technological skills.

Citigroup mentioned in its 2024 report that, as it adopts generative AI at select parts of the bank, risks arise, such as faulty, ineffective or incomplete results produced for analysis. The data could be inadequate or inaccurate, which could impact the bank’s reputation, clients, customers, or results of operations.

Goldman Sachs notes in its report that, while it increased its investment in AI and blockchain technology, growing competition poses the risk of affecting customer retention and attraction, as it quickly integrates AI to boost productivity, reduce costs, and offer clients better services. Financial firms also run the risk of poorly maintaining data privacy and regulatory compliance in an environment that is rapidly growing and is regarded as less certain. In 2024, the EU Artificial Intelligence Act went into effect, establishing new rules on the use of AI systems in regions where many US banks operate.

JPMorgan representatives mentioned that AI may be the biggest challenge the bank is facing currently, claiming that AI could potentially augment every job. Representatives for the banks declined to comment beyond the AI disclosures in their annual reports.

AI and cybersecurity

As banks are increasingly adopting AI, cybercriminals are doing the same, utilising AI for more sophisticated attacks, according to Accenture. The bank’s most recent global survey of 600 cybersecurity executives in the banking industry found their teams are struggling to keep up with their organizations’ AI adoption efforts. Among respondents, 80% believe generative AI is empowering criminals faster than banks can respond.

Morgan Stanley mentioned in its latest report that GenAI, remote work, and third-party tech could pose a risk to data privacy. The risks introduced by using AI while working from home will require firms to set up rules to avoid problems.