AI-driven financial fraud: key risks and legal protections for financial institutions

Vitaliy Shpachuk; Olena Markova; Bogdan Adamyk

doi:10.1057/s41261-025-00304-y

AI-driven financial fraud: key risks and legal protections for financial institutions

Vitaliy Shpachuk
, Olena Markova
, Bogdan Adamyk^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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Abstract

Artificial intelligence (AI) has become integral to financial institutions operations. Implementing AI allowed significant improvement in service quality and enabled innovative customer solutions. At the same time, with all the advantages and positive aspects of using AI, it also creates additional risks, depending on who and for what it is used. In the hands of fraudsters, AI becomes a tool with which financial institutions and their clients are causing significant damage, and not only financial. At the same time, in scientific literature, this issue has been studied mainly from the technical, technological, and financial sides, with insufficient attention paid to the legal risks of this issue. This article addresses that gap by examining the legal risk landscape and protective measures for financial institutions in the context of AI-driven fraud. We review the key ways AI is used to commit fraud, analyse the existing UK and EU legal frameworks governing AI and financial fraud (including data protection and financial services regulation), and evaluate the mechanisms of redress available to clients and institutions. Our analysis highlights inconsistencies and challenges in the current legal approach, particularly in the UK’s principles-based framework, and underlines the need for more transparent accountability, robust risk management, and updated legal remedies to address AI-enabled financial fraud.

Original language	English
Article number	6
Number of pages	19
Journal	Journal of Banking Regulation
Volume	27
Issue number	1
Early online date	20 Jan 2026
DOIs	https://doi.org/10.1057/s41261-025-00304-y
Publication status	Published - Mar 2026

Bibliographical note

Copyright © The Author(s) 2026. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0/.

Funding

This work was supported by the European Union’s Horizon 2024 research and innovation program under the Marie Skłodowska Curie grant agreement No. 101235440 - FORCE. This publication reflects only the author’s view, and the REA is not responsible for any use that may be made of the information it contains.

Funders	Funder number
European Union’s Horizon 2024 research and innovation program
H2020 Marie Skłodowska-Curie Actions	101235440

Keywords

Artificial intelligence (AI)
financial institutions
Financial fraud
Legal risk
Regulation
Financial ombudsman service

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10.1057/s41261-025-00304-yLicence: CC BY 4.0

AI-driven financial fraud - key risks and legal protections for financial institutions
Copyright © The Author(s) 2026. This article is licensed under a Creative Commons Attribution 4.0 International License, which permits use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons licence, and indicate if changes were made. The images or other third party material in this article are included in the article’s Creative Commons licence, unless indicated otherwise in a credit line to the material. If material is not included in the article’s Creative Commons licence and your intended use is not permitted by statutory regulation or exceeds the permitted use, you will need to obtain permission directly from the copyright holder. To view a copy of this licence, visit https://creativecommons.org/licenses/by/4.0/.
Final published version, 1.3 MBLicence: CC BY 4.0

Cite this

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AI-driven financial fraud: key risks and legal protections for financial institutions

Abstract

Bibliographical note

Funding

Keywords

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