Data Quality Is Critical to GenAI’s Expanding Impact in Finance

by | Generative AI

Midjourney depiction of AI bias in finance

The generative AI (GenAI) market for financial services is expected to grow by 28% over the next decade. This means that we will soon be able to say farewell to the traditional cumbersome processes that once defined the financial sector – manual data entry, lengthy decision-making for loan approvals, and complex, error-prone fraud detection methods. As GenAI automates and refines these (and many more) processes, it accelerates operations, improves accuracy, and cuts operational costs.

However, the integration of GenAI into finance also brings forth a set of new challenges. Issues such as ensuring data privacy, adjusting security measures, and developing ethical frameworks for AI use must be addressed in order to fully realize the potential of this technology. Financial institutions are now tasked with balancing the capabilities of GenAI with the need to uphold trust and integrity.

What is Generative AI?

GenAI differs from traditional AI models in its fundamental approach. Traditional AI models operate primarily through the analysis of data and making predictions based on past observations. That’s what makes them excel in structured environments where the rules are well-defined and the outcomes are predictable.

However, GenAI is a bit more surprising, and a tad unpredictable (in a good sense). Its creative capabilities allow it to produce outputs that do not strictly depend on predefined algorithms making it able to impress, surprise and what’s most important – innovate, thus expanding its utility.

The Technologies Behind GenAI

  • GenAI uses deep learning to process and interpret complex data structures. This involves multiple layers in neural networks, each designed to recognize various aspects of data and contribute to the output.
  • Neural networks, composed of nodes connected like neurons in the human brain, process inputs from data, and based on the interconnections and weightings of these inputs, produce outputs. These networks are what enable GenAI to generate diverse and complex outputs.
  • GenAI’s power lies in its creative capabilities, its ability to generate new and unique outputs, from text to images and sounds. This makes it highly versatile and useful across various business sectors and use cases.

History of AI in Finance

  • 1980s: Expert Systems – AI’s introduction to finance revolved around expert systems designed to emulate and automate the decision-making processes of human experts. These systems managed structured data to provide investment advice and enhance decision accuracy, laying the groundwork for applications we can see today.
  • 1990s-2000s: Predictive Analytics and Machine Learning – As tech got bolder, financial institutions began to make use of more complex algorithms. The decade saw the rise of machine learning models that could analyze vast datasets in order to forecast market trends, manage risk, and detect fraud.
  • 2010s: Algorithmic Trading and Deep Learning – The integration of deep learning technologies allowed for the execution of high-frequency trading strategies that played high-speed chess with market inefficiencies. This period also marked significant advancements in risk management and regulatory compliance using AI.
  • 2020s: Generative AI and Expansion – The latest phase in AI development is characterized by the adoption of generative AI, expanding AI’s role from operational automation to being a driver of innovation. GenAI is used for creating personalized financial advice, automating customer interactions, and developing new financial products, transforming the whole sector. It can be used to produce narrative reports and can even help prepare initial drafts of 10-Qs and 10-Ks, including footnotes and MD&A.

Generative AI Use Cases in Finance

Trading floors, customer service desks, back offices, and beyond – GenAI’s potential is not limited to automating routine tasks. GenAI has the capability to revolutionize the way financial institutions operate, offering insights and capabilities that push the boundaries of traditional financial services.

Trading and Asset Management

GenAI has significantly upgraded the capabilities of algorithmic trading, which, as the name suggests, utilizes algorithms to execute trades based on predefined criteria. The real magic of GenAI in this context lies in its ability to go through massive, chaotic datasets while extracting useful signals that even seasoned traders might miss. Looking ahead, the potential for GenAI to not only react to market conditions but also autonomously fine-tune trading strategies in real time could redefine how trading floors operate.

Similarly, the predictive models can foresee potential risks and suggest mitigation strategies. These models analyze historical data and current market conditions to forecast future market behaviors and identify possible risk factors. This capability enables financial institutions to manage their risk exposure more effectively and make more informed decisions

Customer Interactions

Not-so-slowly and steadily, chatbots and virtual assistants are becoming not just automated but actually smart. So smart in fact, that they can discern the context of customer inquiries with a nuance that almost mirrors human understanding.

5 Point RAG Strategy Guide to Prevent Hallucinations & Bad Answers This guide designed to help teams working on GenAI Initiatives gives you five actionable strategies for RAG pipelines that will improve answer quality and prevent hallucinations.

These systems now make use of vast amounts of data, learning from each interaction to enhance their responses. The more they interact, the better they understand customer preferences, history, and even future needs. It’s a continuous cycle of learning and improving that ensures every customer interaction is more informed than the last – a cycle that leads to the moment when every customer will feel like the only customer.


In the operational sphere, GenAI is revolutionizing back-office functions. Where once post-trade processing, compliance, and reporting lumbered along through seas of paperwork and bureaucratic delay, GenAI now steers these processes. It automates and optimizes these complex tasks with a level of precision that cuts down on both time and the margin for error.

The same is slowly beginning to happen in human resources and management. Generative AI in finance aids in generating management summaries, translations, and such. By addressing these tasks, it frees up the human workforce so that they can engage in more strategic, and creative endeavors.

Fraud Detection

Here, GenAI operates by analyzing patterns within massive datasets – far more than a human could feasibly review – in order to understand these patterns of behavior on a granular level. It continuously looks for anomalies that signal potential fraud, from irregular transaction patterns to unusual account behavior.

Moreover, GenAI in finance can employ techniques such as anomaly detection, which identifies outliers in data that do not conform to expected patterns. This method is particularly effective in spotting new, previously unseen tactics used by fraudsters.

GenAI enhances its detection strategies by incorporating natural language processing (NLP) to scrutinize communication and documentation for inconsistencies or suspicious narratives that may suggest fraudulent intent.

New Product Development and Innovation

Market data, customer feedback, and evolving trends are all taken into account by GenAI for the sole purpose of spotting opportunities that might be invisible to the human eye. The goal is to create tools that are genuinely useful, like savings accounts that automatically adjust to give the best interest rates based on real-time economic shifts, or insurance packages that evolve with the customer’s changing lifestyle.

GenAI is also turning its hand to crafting new market strategies. It analyzes patterns and predictions about where the market is headed, enabling companies to not just keep up but get ahead. Financial strategies powered by AI anticipate the market by preparing defenses against potential downturns and seizing opportunities as they arise.

Unique Challenges of GenAI in the Finance Industry

With great potential, come challenges – ones that are not to be ignored if GenAI is to transform the finance industry for the better. From ensuring the reliability of AI models to maintaining stringent data security, promoting transparency, and upholding ethical standards, the path forward requires care. What’s equally as important though is the awareness that GenAI is not perfect, at least not yet.

Model Health and Market Manipulation

Two of the significant challenges facing GenAI in the financial sector are maintaining the health of AI models and guarding against market manipulation. The integrity of these models is crucial, yet they are vulnerable to certain faults and manipulations that can lead to significant disruptions in financial markets.

  • Model Hallucinations: A key issue is the occurrence of hallucinations, where GenAI systems generate misleading information based on erroneous or incomplete data. These hallucinations arise when AI models infer incorrect patterns from the data they are trained on, especially if the data set is flawed or not representative of current market conditions. For instance, an AI might interpret a temporary market anomaly as a long-term trend, leading to outputs that could misguide investment decisions.
  • Susceptibility to Manipulation: The potential for market manipulation using GenAI systems is a grave concern. If traders or malicious actors understand how a GenAI system processes information, they could craft input data designed to trigger specific outputs. This could be done by “feeding” the AI misleading information that would lead to predictable misjudgments in stock prices or market trends, thereby creating opportunities for those in the know to capitalize on these artificial movements.


GenAI systems learn from existing data—data that humans have touched, shaped, and sometimes altered. This learning process can lead to the unintentional perpetuation of existing biases. In realms such as credit allocation, this means GenAI might inherit and perpetuate historical biases, where certain demographics could find themselves unfairly advantaged or disadvantaged. The decisions made by a machine could mirror our past prejudices, potentially embedding them even deeper into the fabric of financial service.

Lack of Explainability

GenAI sometimes makes decisions that can be baffling to human beings. These models process an enormous breadth of data and variables, churning through them with such complexity that tracking how decisions are made is close to impossible. When a loan is denied or a transaction flagged, pinning down the ‘why’ behind these decisions can be as elusive to an average protein brain.


When an AI system evaluates someone’s financial standing, everyone involved—be it the customer or the compliance officer—should clearly see how each piece of data tipped the scales. This openness not only builds trust but ensures financial experts can double-check the AI’s doing, confirming its accuracy and fairness.

The challenge with transparency mainly lies in the inherently complex nature of AI models, especially those employing deep learning. These models operate through complex, often opaque processes that can make tracking the decision-making pathway difficult. Addressing this involves developing AI systems that are inherently more interpretable and easy to understand.

Methods like feature visualization are also being employed to illustrate and explain how certain data inputs influence AI decisions, helping those who aren’t AI experts understand the process.


Accountability ensures that there are effective systems in place to review and rectify AI-driven decisions within financial services. It’s important that there are straightforward methods for humans to evaluate and, if necessary, overturn decisions made by AI, such as loan approvals or denials. This involves integrating a Human in the Loop (HitL) into AI operations, ensuring that humans can adjust or override AI outputs where needed.

Implementing accountability also includes setting up formal procedures for disputing AI decisions, and providing people affected by these decisions a clear path to seek redress. Moreover, documenting and standardizing AI decision-making processes aids in regulatory compliance and auditing, ensuring that AI systems operate within established legal and ethical frameworks.

Data-Related Risks

As GenAI relies heavily on vast amounts of personal and financial data to make decisions, ensuring this information is kept secure is of the utmost importance. Any lapses in data security can cause breaches that compromise individual privacy, and can lead to loss of consumer confidence in the entire financial system.

Then there’s the matter of data quality. If this data is outdated, incomplete, or incorrect—what we might call poor data hygiene—the reliability of the AI’s financial decisions can be severely compromised. In such a case, inconvenience would be the least of our worries. Low-quality data could mean a potential disaster, leading to faulty credit scores, poor investment advice, and other financial faux pas.

To mitigate these risks, financial institutions should invest heavily in advanced cybersecurity measures, data encryption, and secure data storage solutions. Alongside, they should maintain a strict regimen of data hygiene—keeping the data clean, complete, and up to date, ensuring the decisions made by GenAI systems are sound.

Future Outlooks

Future developments in GenAI will lead to better predictive models, more accurate financial analysis, and even more intuitive customer interfaces. Imagine a system where financial advice is dispensed with a near-prescient understanding of market shifts or personal financial needs—all done in real time with high accuracy. One day, it could be the reality.

As these technologies advance, financial institutions and regulators will need to evolve alongside them. This means adapting current systems and practices as well as rethinking regulatory frameworks. The challenge lies in ensuring that these adaptations are done in a way that maintains the integrity and security of financial markets.

While GenAI offers substantial benefits in terms of efficiency and new capabilities, it also raises significant concerns about privacy, data security, and the potential for bias. Ensuring that GenAI systems are transparent, fair, and accountable will be essential in maintaining trust in financial services.

Data Quality Is Critical to GenAI’s Expanding Impact in Finance: image 1

Read more from Shelf

May 23, 2024RAG
Data Quality Is Critical to GenAI’s Expanding Impact in Finance: image 2 10-Step RAG System Audit to Eradicate Bias and Toxicity
As the use of Retrieval-Augmented Generation (RAG) systems becomes more common in countless industries, ensuring their performance and fairness has become more critical than ever. RAG systems, which enhance content generation by integrating retrieval mechanisms, are powerful tools to improve...

By Vish Khanna

May 23, 2024Generative AI
Data Quality Is Critical to GenAI’s Expanding Impact in Finance: image 3 Prevent Costly GenAI Errors with Rigorous Output Evaluation — Here’s How
Output evaluation is the process through which the functionality and efficiency of AI-generated responses are rigorously assessed against a set of predefined criteria. It ensures that AI systems are not only technically proficient but also tailored to meet the nuanced demands of specific...

By Vish Khanna

May 22, 2024News/Events
Data Quality Is Critical to GenAI’s Expanding Impact in Finance: image 4 Mannequin Medicine Makes Perfect, OpenAI’s Shifting Priorities, Google Search Goes Generative
AI Weekly Breakthroughs | Issue 11 | May 22, 2024 Welcome to AI Weekly Breakthroughs, a roundup of the news, technologies, and companies changing the way we work and live. Mannequin Medicine Makes Perfect Darlington College has introduced AI-powered mannequins to train its health and social care...

By Oksana Zdrok

Data Quality Is Critical to GenAI’s Expanding Impact in Finance: image 5
The Definitive Guide to Improving Your Unstructured Data How to's, tips, and tactics for creating better LLM outputs