The Role of AI in preventing financial fraud and enhancing compliance

Paul, Adetunji Adejumo and Ogburie, Chinonso (2025) The Role of AI in preventing financial fraud and enhancing compliance. GSC Advanced Research and Reviews, 22 (3). pp. 269-282. ISSN 2582-4597

The rapid evolution of financial technology has led to an increase in financial fraud, making the role of artificial intelligence (AI) crucial in detecting, preventing, and mitigating fraudulent activities. AI-driven systems leverage machine learning (ML), natural language processing (NLP), and predictive analytics to identify suspicious patterns, anomalies, and fraudulent transactions in real time. These technologies enhance traditional rule-based fraud detection mechanisms by continuously learning from new data and improving accuracy. AI plays a vital role in regulatory compliance by automating processes such as Know Your Customer (KYC) and Anti-Money Laundering (AML) checks. Through advanced algorithms, AI can analyze large volumes of financial data to detect suspicious behaviors that may indicate money laundering or financial misconduct. Additionally, AI-powered solutions reduce the reliance on manual compliance procedures, thereby increasing efficiency, reducing human errors, and ensuring adherence to evolving regulatory frameworks. One of the key advantages of AI in financial fraud prevention is its ability to adapt to new and emerging threats. Traditional methods often struggle to keep up with the ever-evolving tactics used by cybercriminals, whereas AI can quickly adjust to novel fraudulent schemes by analyzing behavioral patterns and transactional data in real time. Furthermore, AI-driven automation reduces operational costs for financial institutions while improving risk management strategies. Despite its benefits, AI in financial fraud prevention presents challenges such as ethical considerations, data privacy concerns, and potential biases in algorithmic decision-making. Ensuring transparency and accountability in AI-driven fraud detection systems is crucial to maintaining customer trust and regulatory compliance. AI is revolutionizing financial fraud prevention and regulatory compliance by enhancing detection capabilities, automating compliance procedures, and improving operational efficiency.