AI Integration in Financial Institutions: Implications for Transparency and Data Security

Ihsan ihsan; Muhammad Daffa Putra Zaman; Eka Imam Utomo; Muhammad Happy Marcelino; Dani Reza Aprilian

Authors

Ihsan ihsan UNIVERSITAS MUHAMMADIYAH SURAKARTA Author
Muhammad Daffa Putra Zaman Faculty of Law and Political Science, Muhammadiyah University Surakarta Author
Eka Imam Utomo Author
Muhammad Happy Marcelino Faculty of Law and Political Science, Muhammadiyah University Surakarta Author
Dani Reza Aprilian Faculty of Law and Political Science, Muhammadiyah University Surakarta Author

Keywords:

Financial Institutions, Artifical Intelelligence, Banking

Abstract

This study was conducted to determine the effectiveness of fraud detection in the banking and financial technology (fintech) sectors. With the presence of a new innovation such as Artificial Intelligence (AI), it is expected to be able to analyze the impact of integration on the operational transparency of financial institutions and identify potential risks and challenges of data security due to the use of AI, as well as to develop recommendations for governance and regulatory strategies that support the ethical and safe implementation of AI. This method uses a normative juridical approach with a descriptive-analytical nature to examine the protection of personal data in the use of artificial intelligence (AI) for fraud detection in the banking and fintech sectors. The normative approach is a review of the legal and ethical aspects of customer data protection. AI integration can increase efficiency and accuracy in financial processes, including detecting fraud and risk management. The application of AI can create potential vulnerabilities to data security due to the use of big data and automated algorithms. The transparency of this AI system is still a focus of challenges because many algorithms are still black box (not easy to understand). Stricter regulations and data security standards are needed so that the application of AI does not harm customers. The purpose of this research is to inform policymakers' considerations in formulating AI regulations in the financial sector, and to provide financial institutions with insights into strengthening their technology transparency and security systems. This research provides a novel approach, presenting an integrated analysis of AI technology, transparency, and customer data security within the context of Indonesian financial institutions. Combining legal and technological approaches provides an ethical perspective on AI implementation, which has previously focused solely on technical aspects.

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