In an increasingly globalized economy, corporate governance has become a critical concern for both domestic and foreign investors. As businesses expand across borders, the need for regulatory frameworks that ensure transparency, accountability, and investor protection grows stronger. One of the key instruments facilitating this is international treaties. Treaties, whether bilateral or multilateral, play a crucial role in shaping corporate governance by setting standards for ethical business conduct, reducing investment risks, and fostering investor confidence.
 
WHAT ARE TREATIES?
Treaties are binding agreements under international law between countries or international organizations. They govern diverse areas including trade, investment, taxation, human rights, and corporate governance, fostering cooperation and legal stability across jurisdictions.
For foreign investors, treaties, especially Bilateral Investment Treaties (BITs) and Multilateral Trade Agreements (MTAs), play a crucial role in ensuring fair treatment, protecting investments, and promoting transparency in corporate governance. In essence, treaties promote trust and accountability in foreign markets, thereby creating a more secure and predictable environment for investors.
 
 TYPES OF TREATIES
 
 Bilateral Treaties (Between Two Countries)
These are agreements between two countries, often covering trade, investment, defense, taxation, or other areas of cooperation. They also help to strengthen diplomatic and economic ties between the two nations. Some examples include.
The Nigeria-UK Bilateral Investment Treaty (BIT) helps protect UK investors in Nigeria and vice versa. The Nigeria-Canada Double Taxation Treaty, which prevents businesses and individuals from being taxed twice on the same income etc.
Multilateral Treaties (Between Multiple Countries)
These are treaties that involve three or more countries and are usually negotiated through international organizations like the United Nations (UN) or the World Trade Organization (WTO). It also helps to establish global or regional rules on trade, investment, human rights, or environmental protection.
 
Regional Treaties (For Specific Regions)
These treaties apply only to countries within a specific geographic region. For Example, the African Continental Free Trade Area (AfCFTA), which promotes trade among African nations by reducing tariffs and trade barriers. Regional treaties also help to strengthen political, economic, and legal cooperation among neighboring countries.
 
 Trade and Investment Treaties
These treaties protect and promote cross-border trade and investments by ensuring fair treatment, reducing tariffs, and preventing expropriation. For example, the United States-Mexico-Canada Agreement (USMCA), which assists with the regulation of trade between the three North American countries.
Human Rights Treaties
These treaties protect fundamental human rights and freedoms, ensuring that governments treat their citizens fairly. For example, the Universal Declaration of Human Rights (UDHR), sets global human rights standards.
 
CORPORATE GOVERNANCE
Generally, corporate governance refers to the system by which companies and public entities are directed and controlled. It encompasses principles such as accountability, transparency, fairness, and responsibility. It also refers to the systems, principles, and processes that guide how businesses are run.
Effective corporate governance ensures that companies operate ethically, minimize corruption, and protect the interests of stakeholders, including shareholders, governments, host communities, employees, and the broader economy.
For foreign investors, corporate governance is particularly important because:
 It determines the level of protection they receive in host countries.
 Weak governance structures can expose investors to legal uncertainties, financial fraud, and political risks, operational and reputational exposures.
Transparency in financial reporting and decision-making.
Protection from undue government interference, regulatory and statutory dynamics or unfair business practices.
A legal framework that reduces corruption and promotes accountability.
 
HOW TREATIES STRENGTHEN CORPORATE GOVERNANCE FOR FOREIGN INVESTORS
1. Legal Protection and Investor Confidence
International treaties, such as Bilateral Investment Treaties (BITs) and Free Trade Agreements (FTAs), create a stable legal environment that reassures foreign investors. These treaties typically contain provisions that:
Guarantee fair and equitable treatment (FET): Ensuring that foreign investors are not subjected to discriminatory or arbitrary government actions.
Provide dispute resolution mechanisms: Allowing investors to seek legal redress through international arbitration, such as the International Centre for Settlement of Investment Disputes (ICSID).
Ensure protection against expropriation: Preventing governments from seizing investors’ assets without fair compensation. Examples of some treaties with these provisions include:
Article 13 of the Energy Charter Treaty (ECT) provides thus:
“Investments… shall not be nationalized, expropriated or subjected to a measure or measures having effect equivalent to nationalization or expropriation… except where such expropriation is for a purpose which is in the public interest, not discriminatory and carried out under due process of law, and accompanied by the payment of prompt, adequate and effective compensation.”
 Article IV of the United States–Argentina BIT (1991) also provides thus:
“Neither Party shall expropriate or nationalize a covered investment… except for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate, and effective compensation.”
 Annex XX.11 of the Canada–EU Comprehensive Economic and Trade Agreement (CETA) provides thus
“Sets out criteria for lawful expropriation and recognizes indirect expropriation while ensuring public interest is not unduly hampered.”
By incorporating these protections, treaties enhance corporate governance by holding host countries accountable for maintaining legal and ethical business practices.
2. Standardizing Corporate Governance Frameworks
Multilateral treaties, such as those established by the World Trade Organization (WTO), the Organization for Economic Co-operation and Development (OECD), and the United Nations (UN), play a significant role in harmonizing corporate governance standards. These treaties create universal benchmarks that countries must adhere to, leading to:
Adoption of international financial reporting standards (IFRS): Ensuring transparency in financial disclosures.
Implementation of anti-corruption measures: In line with the UN Convention Against Corruption (UNCAC).
Strengthening of corporate accountability laws: Requiring boards of directors to uphold fiduciary duties and ethical decision-making.
For foreign investors, standardization reduces the risks associated with regulatory inconsistencies between home and host countries, making it easier to assess investment opportunities.
3. Strengthening Anti-Corruption Mechanisms
Corruption remains one of the biggest threats to corporate governance and foreign investment. Treaties such as the OECD Anti-Bribery Convention and the United Nations Convention Against Corruption (UNCAC) compel signatory nations to adopt and enforce stringent anti-corruption policies. These include measures to criminalize bribery of public officials, enhance whistleblower protections, and promote transparency in public procurement.
To further strengthen the global response, international anti-money laundering (AML) frameworks play a crucial role in detecting and disrupting the flow of illicit funds generated through corrupt practices. The Financial Action Task Force (FATF) sets global standards for AML and counter-terrorism financing (CFT), requiring member countries to implement robust systems for customer due diligence, financial reporting, and cross-border information sharing.
Additionally, instruments such as the EU Anti-Money Laundering Directives (AMLDs) impose strict compliance obligations on financial institutions to prevent the misuse of financial systems for laundering proceeds of corruption. These include Know Your Customer (KYC) requirements, suspicious transaction reporting, and enhanced scrutiny of politically exposed persons (PEPs).
By ensuring that these policies are legally binding, treaties create a governance framework that minimizes corruption risks and strengthens investor confidence.
 
4. Improving Board and Shareholder Rights
Some international treaties explicitly address corporate governance by requiring companies to enhance board accountability and shareholder protections. This includes:
Strengthening Minority Shareholder Rights
International frameworks such as the OECD Principles of Corporate Governance and the G20/OECD Principles emphasize equitable treatment of shareholders. Instruments like the EU Shareholder Rights Directive II (Directive (EU) 2017/828) enhance the ability of minority and foreign shareholders to participate in key decisions, including voting on executive pay and board appointments. These protections ensure that all shareholders, regardless of ownership percentage, have a voice in corporate affairs.
Mandating Disclosure of Beneficial Ownership
The disclosure of beneficial ownership is a global priority aimed at preventing money laundering, tax evasion, and illicit financial flows. The Financial Action Task Force (FATF) calls on countries to require legal entities to disclose their beneficial owners. Similarly, the United Nations Convention Against Corruption (UNCAC) obliges signatories to adopt transparency measures that expose hidden ownership structures. These requirements help mitigate the risk of corporate misuse and increase investor confidence.
Encouraging Gender Diversity and Ethical Leadership in Boardrooms

Promoting diverse and ethical leadership is central to modern corporate governance. The UN Sustainable Development Goals (SDG 5: Gender Equality), as well as the EU Directive 2022/2381 on Gender Balance on Corporate Boards, push for greater inclusion of women in leadership roles. Additionally, the IFC Corporate Governance Methodology and the G20/OECD Principles encourage ethical conduct, accountability, and integrity within boards, supporting long-term value creation.
Compliance with International Accounting and Auditing Standards

Effective corporate governance also relies on transparent financial reporting. Many treaties and agreements endorse the adoption of International Financial Reporting Standards (IFRS), developed by the International Accounting Standards Board (IASB), to ensure consistency and comparability across jurisdictions. Coupled with the International Standards on Auditing (ISA), these frameworks reinforce board responsibility and provide assurance to investors and regulators.
By enforcing these principles, treaties create an investor-friendly environment where corporate governance is not only a legal requirement but a business imperative.
5. Facilitating Cross-Border Regulatory Cooperation
Foreign investors often face significant challenges when navigating the differing regulatory frameworks of multiple jurisdictions. These discrepancies can lead to conflicts of laws, where legal obligations in one country may contradict or fail to align with those in another. Such conflicts create uncertainty, increase compliance costs, and elevate the risk of legal exposure. Due to this, international treaties play a crucial role in mitigating these challenges by promoting cross-border regulatory cooperation through. Some of the Agreements put in place to achieve same include:
Mutual Recognition Agreements (MRAs): These agreements allow a company’s regulatory compliance in one country to be accepted in another, reducing duplicative efforts and streamlining operations for multinational enterprises.
Regulatory Convergence: Treaties encourage countries to harmonize their corporate governance standards, including financial reporting, board composition, transparency obligations, and shareholder protections. This alignment promotes predictability and reduces regulatory arbitrage.
Data Sharing and Enforcement Collaboration: Cross-border treaties enable regulators to share information and coordinate enforcement actions. This collaboration helps monitor and prevent issues such as money laundering, tax evasion, and corporate fraud that transcend national boundaries.
By fostering international regulatory coherence, such treaties enhance transparency, accountability, and compliance key pillars in preventing corporate governance failures.
Conflict of Laws and Practical Solutions
When foreign investors operate across borders, they often encounter jurisdictional overlaps, where the laws of two or more countries may simultaneously apply. Examples include differing standards on accounting disclosures, director liability, or shareholder rights.
To address these issues, treaties may include:
Choice of Law Clauses: Specifying which jurisdiction’s laws will govern in case of disputes.
Harmonized Legal Definitions: Ensuring consistent interpretation of key terms (e.g., “beneficial ownership,” “related-party transactions”) across legal systems.
International Legal Frameworks: Encouraging alignment with supranational standards such as those from the OECD, UNCITRAL, or IOSCO.
Alternative Dispute Resolution (ADR) Remedies
To further reduce legal uncertainty, many treaties incorporate or support ADRmechanisms such as:
International Arbitration: Often facilitated through institutions like the International Centre for Settlement of Investment Disputes (ICSID) or the International Chamber of Commerce (ICC), arbitration offers a neutral forum for resolving cross-border disputes outside domestic courts.
Mediation and Conciliation: These less adversarial options are increasingly being integrated into investment and trade agreements to encourage early settlement and preserve business relationships.
Investor-State Dispute Settlement (ISDS): Embedded in many investment treaties, ISDS mechanisms allow foreign investors to bring claims directly against host states for treaty violations, thereby enhancing legal protections and reducing political risk.
Some examples of treaties that have strengthened Corporate Governance include:
 
International and Regional Treaties Advancing Corporate Governance.
The US-Mexico-Canada Agreement (USMCA)
The USMCA, which replaced NAFTA, introduced a more robust framework for corporate governance. It includes enforceable labor rights protections, anti-corruption standards, and heightened compliance obligations for multinational corporations. These measures have improved transparency and accountability, especially for companies operating across borders.
 
The European Union’s Corporate Governance Directives
Through legal instruments such as the Treaty on the Functioning of the European Union (TFEU), the EU has harmonized corporate governance practices across member states. These directives promote investor protection, enhance boardroom accountability, and require timely financial disclosures, thereby fostering a healthier investment environment.
Nigeria’s Bilateral Investment Treaties (BITs)
Nigeria has entered into several BITs with countries like the United Kingdom, China, the Netherlands, and Germany. These treaties offer protections such as fair and equitable treatment, dispute resolution mechanisms through international arbitration, and safeguards against expropriation. As a result, foreign investors enjoy improved legal certainty and confidence in Nigeria’s business climate.
The African Continental Free Trade Area (AfCFTA)
The AfCFTA represents a historic step towards economic integration on the continent. Beyond its trade liberalization goals, it encourages harmonization of investment and corporate governance standards. By promoting transparency, fair competition, and sustainable development, AfCFTA lays the groundwork for a continent-wide corporate governance framework that supports cross-border investments and long-term economic stability.
The Organisation for the Harmonisation of Business Law in Africa (OHADA)

Covering 17 West and Central African countries, OHADA has been instrumental in standardizing business laws, including those on corporate governance, accounting, and commercial practices. Its unified legal framework has increased investor confidence, simplified dispute resolution, and enhanced corporate transparency particularly in Francophone African nations.
The Southern African Development Community (SADC) Protocol on Finance and Investment
The SADC Protocol aims to foster a sound investment climate by encouraging good governance, financial accountability, and private sector development. It commits states to uphold minimum standards for transparency and to adopt best practices in corporate regulation, thereby reducing investment risks across Southern Africa.
 
CHALLENGES AND LIMITATIONS
Despite their advantages, treaties are not without significant challenges, particularly in the context of corporate governance. Some of these challenges include:
Enforcement Deficiencies: One of the primary limitations of treaty-based frameworks is the inconsistent enforcement across jurisdictions. While treaties often outline best practices and obligations, some signatory countries lack the institutional capacity, political will, or legal infrastructure to fully implement these provisions. This results in gaps between commitment and compliance, ultimately weakening the intended impact on corporate governance standards.
Sovereignty and Regulatory Autonomy: Treaties can be perceived as encroachments on national sovereignty. Governments may resist fully adopting treaty-based governance mechanisms that are seen as externally imposed or inconsistent with domestic priorities. This tension between international obligations and national interests often slows down the pace of legal harmonization and creates room for selective implementation.
Investor-State Disputes and Legal Uncertainty: Although treaties often include dispute resolution mechanisms such as arbitration, these can lead to protracted and expensive legal battles. In some cases, the invocation of investor-state dispute settlement (ISDS) provisions has deterred regulatory reforms, as states fear litigation from foreign investors. This creates a chilling effect where governments may hesitate to introduce new corporate governance standards that could trigger claims.
Lack of Contextual Sensitivity: Many treaties adopt a one-size-fits-all approach, failing to consider the unique economic, political, and legal realities of different countries. This can result in governance frameworks that are misaligned with local needs or impractical to enforce, thereby undermining their effectiveness.
Limited Stakeholder Engagement: The treaty negotiation and implementation processes often exclude key domestic stakeholders such as civil society, local businesses, and non-governmental organizations. This lack of inclusivity can reduce legitimacy, hinder local buy-in, and diminish the success of corporate governance reforms.
Addressing these limitations would require multi-pronged strategy, enhanced international cooperation, the creation of robust and transparent monitoring systems, capacity-building efforts in domestic institutions, and a commitment to legal reforms that localize international standards in a way that reflects national realities and encourages ownership by all stakeholders.
 
CONCLUSION AND RECOMMENDATION
Treaties play a vital role in strengthening corporate governance for foreign investors by promoting legal certainty, standardizing regulations, combating corruption, and facilitating cross-border cooperation. As global investments continue to rise, the importance of treaties in ensuring good governance will only become more critical. For businesses and investors, understanding the impact of treaties on corporate governance is essential for making informed investment decisions. Likewise, governments must continue to leverage treaties to build investor-friendly environments that attract and retain foreign capital. By fostering transparency, accountability, and legal stability, treaties serve as powerful tools for enhancing corporate governance and driving sustainable economic growth worldwide.
Nevertheless, to fully realize the benefits of treaty-based governance, certain challenges must be addressed. One of the foremost needs is to strengthen enforcement mechanisms. This can be achieved through clearer implementation frameworks, regular compliance assessments, and capacity-building efforts that help countries meet their treaty obligations effectively. At the same time, treaty design should carefully balance the preservation of national sovereignty with the need for international cooperation. By allowing flexible implementation models that respect domestic legal systems, countries are more likely to adopt and internalize treaty provisions without perceiving them as external impositions.
Reforming dispute resolution processes is also critical. Investor-state dispute mechanisms should be made more transparent, efficient, and less adversarial. Incorporating mediation or other alternative dispute resolution tools before formal arbitration may reduce prolonged legal conflicts and maintain investor confidence. Furthermore, treaties must be designed with contextual sensitivity. A one-size-fits-all approach often fails to reflect the socio-economic and institutional differences between countries. Encouraging states to tailor treaty obligations to align with their local realities can improve implementation and long-term impact.
Finally, inclusive stakeholder engagement should be prioritized. The participation of civil society, private sector actors, and local legal institutions in treaty negotiation and implementation processes fosters greater legitimacy and promotes a shared sense of ownership. This inclusiveness helps ensure that treaty-based governance reforms are not only technically sound but also socially acceptable and politically sustainable.
By addressing these limitations through stronger cooperation, better design, and inclusive practices, treaties can become even more effective tools for enhancing corporate governance, fostering trust, and promoting sustainable investment-driven development.

The financial services industry has undergone a deep transformation in recent years, motivated by technological advancements that are reshaping the very fabric of how we manage money. Gone are the days when banking and finance were strictly traditional operations, where personal interactions reigned supreme. Today, we find ourselves in an era where artificial intelligence (AI), machine learning, and automation are not just catchphrases but vital tools that are redefining the landscape. These technologies are acting as catalysts for change, revolutionizing the way financial institutions operate, interact with customers, and manage risk.
Imagine walking into a bank and being greeted not just by a friendly face but also by sophisticated algorithms that can analyze your financial needs in real time. From trading algorithms that make lightning-fast decisions on the stock market to AI-driven chatbots that provide personalized customer support around the clock, the integration of these technologies is enhancing efficiency and elevating the customer experience. Yet, it’s not just about speed; it’s about understanding and anticipating the needs of clients in a way that feels genuinely human.
This article delves into the transformative impact of AI and automation on the financial services industry. It explores their applications across various domains, examining how they are streamlining processes, mitigating risks, and ultimately making financial services more accessible to everyone. As we navigate this exciting landscape, This article also reflect on the human element at play, showing how technology is not only changing the mechanics of finance but also fostering deeper connections between institutions and their customers.
Understanding Artificial Intelligence
Artificial Intelligence (AI) refers to the development of machines or systems that can execute tasks requiring human intelligence. it allows machines to learn from experience, adapt to new inputs, and carryout analytical tasks, often imitating human thinking.
It might not be possible to identify what part of modern society has not been affected or influenced by AI as Intelligence machines are influencing almost every facet of our lives, including business operations and our daily activities, with the aim of improving efficiencies. AI is intersecting into everything we do that it is hard to imagine living without it. It has been said that AI is the major influencer of the 4th Industrial Revolution disruptive changes (Also known as Industry 4.0, a new era of development in which digital, physical and biological systems converge, fundamentally transforming industries, economies and societies), the change that will most likely dispute human ideas. It is modifying the way we interact and live in an intensifying method, making our cities become smarter and helping us to manage our lives.
Overview of AI and Automation in Financial Services
Automation refers to the use of equipment and systems that are capable of automatically completing specific, unchanging tasks without the need for human intervention. Though the term is often used to refer to a wide range of technologically sophisticated systems, the use of automatic tools can actually be traced back thousands of years to places like China and Greece, where trip hammers powered by water and steam-powered reaction motors were experimented with by crafty inventors.
During the 20th century, the use of automated machinery and processes quickly expanded as new technologies were developed. The creation of digital electronic computers, sensors, and lasers (among other things) allowed for the development of machines capable of performing more complex automatic tasks, such as assembling cars and smartphones. Automation has been a persistent trend in the work world for many decades. The specialized possibilities for automation differ significantly across industries and activities. As automation innovations, robotics and machine learning assume a tremendously incredible job in regular daily activities, their likely impact on the working environment has become a focal point of research and open concern.
While automation technology will dispose of few occupations in the following years, it will also influence parts of practically all employees to a higher or lower level, depending upon the sort of work they involve. Automation, presently progressing past standard manufacturing, has the likelihood, at least to its technical feasibility, to change sectors, for example, medical and financial, which include a significant portion of information duties.
Artificial Intelligence (AI) refers to the development of machines and computers capable of performing complex tasks that require decision-making to be accomplished and, so usually also require a human to perform. The most prevalent form of AI today is machine learning, which relies on machine learning models created by algorithms trained data sets to accomplish such relatively complex tasks as predicting price fluctuations and identifying subjects in photographs .
The integration of Artificial Intelligence (AI) and automation has revolutionized financial services by improving decision-making processes, reducing human errors, and enhancing the overall speed and accuracy of financial operations. Today, financial institutions increasingly rely on advanced data-driven algorithms, automated processes, and AI-driven customer interactions.
The financial industry’s adoption of AI and machine learning is evolving as financial firms employ greater levels of technology and automation to deliver services. Expanding on earlier models of quantitative analysis, AI and machine learning has often been adopted in finance to solve discrete challenges, such as maximizing profit and minimizing risk. Technological advances in computer hardware, capacity, and data storage which permit the collection and analysis of data helped fuel the development and use of AI and machine learning technologies in finance. Unlike older algorithms that automated human-coded rules, new AI models can learn by themselves and make inferences and recommendations not identified by modelers in advance. This shift in technology has also enabled the use of new types of data including alternative data (i.e., data that the consumer credit bureaus do not traditionally use), unstructured data (images or social media posts, etc.), and unlabeled information data which, when combined, extend the technologies’ uses to new financial services or products. Different parts of the financial services industry have adopted AI and machine learning technology to varying degrees and for various purposes. Some uses of AI and machine learning include powering chatbots in customer service functions, identifying investment opportunities and/or executing trades, augmenting lending models or (more sparingly) making lending decisions, and identifying and preventing fraud. .
Definition of AI and Machine Learning
As commonly defined, Artificial Intelligence (AI) is the ability of machines to make decisions and learn in a similar manner as humans. It is commonly known as a branch of computer science that deals with the simulation of behaviors of computer intelligence. Commonly abbreviated as AI, artificial intelligence refers to a computer system that can complete tasks that normally require the intelligence of humans, including recognition of speech, visual perception, decision making and language translations.
Machine learning on the other hand, is a sub-branch of artificial intelligence i.e., all machine learning are component of AI, but not all AI count as the latter. It refers to the component of computer science whose aim is to build and leverage existing algorithms in order to establish generalized models that offer patterns and accurate predictions. Such algorithms are usually based on mathematical and statistical optimization.
Overview of AI and Machine Learning
Amidst the fact that AI and machine learning have been around for centuries, their revelation was not possible until the late 1950s. A series of philosophers, scientists, and mathematicians attempted to explore the concept of AI, but it was not until World War II when Alan Turing, a British Polymath, suggested to people how to use available information to make decisions and solve problems. Alan was able to figure out and understand the “Enigma” code that was used by the armed forces in the Bombe Machine, which helped in deciphering the messages. Turing concluded that a machine that was able to converse with humans could be referred to as an “intelligent” object.
In the early 1950s, John Mcarthy, the top computer scientist in the US, organized a conference where the term, “Artificial Intelligence” was invented. Researchers across America became interested in understanding the concept of AI, thus exploring the subject. Both Herbert Simon and Allen Newell were very instrumental in promoting the field of AI that would later transform the world.
In 1951, Ferranti Mark I, a unique machine, was able to use an algorithm successfully to analyze and master checkers. In turn, Simeon and Newell invented an algorithm, commonly known as the “General Problem Solver”, to solve mathematical problems. Also, in the 1950s, John McCarthy developed the List Processing (LISP) programming language, which was considered a significant part of AI and machine learning. And in the 1960s, the development of algorithms was emphasized by several researchers to address mathematical problems. In the same decade, computer scientists discovered machine vision learning which could be used in controlling robots, and in 1972 the first intelligent robot, WABOT-1, was established in Japan.
However, amidst the global effort to enhance AI applications, computer scientists realized that it was challenging to create intelligence in machines. In order for AI and machine learning to become successful, scientists needed an enormous amount of data. However, the computers that were available at the time were not well developed to handle such magnitude of data. Corporations and governments lost faith in AI, and in the 1970s and 1990s, scientists experienced a shortage in the funding of AI research.
In the 90s, several giant companies once again developed an interest in developing AI. The government of Japan unveiled the plans to come up with the 5th generation computers in order to advance machine learning. The enthusiast of AI believed that computers would soon carry conversations, interpret photos, translate languages and reason like humans. In 1997, the Deep Blue, IBM’s computer, became the first to beat all computers in holding and interpreting information.
Over time, the exponential gains in the processing powers and storage ability of computers enabled companies to store vast quantities of data. In the past 15 years, superpowers such as Google, Amazon, Baidu and other companies have exploited AI and machine learning to great commercial advantage.
Application of AI and Machine Learning in Finance
The finance industry has been one of the earliest adopters of AI. With its first entrance into the finance landscape going as far back as the 1980s, AI is driving some of the biggest trends in finance, such as fraud detection, algorithmic trading, banking chatbots etc. Financial businesses worldwide are working overtime to integrate these features into their operations .
Followed by AI’s massive success in sectors like retail and manufacturing, it is currently ready to transform the financial service . As AI and machine learning become more integrated into financial systems, concerns about data privacy, algorithmic bias, and the potential for unethical practices have emerged. Researchers have emphasized the need for robust governance frameworks and ethical standards to ensure the responsible use of AI and machine learning in finance . We shall delve into the key applications of AI and machine learning in finance;
Algorithmic Trading
Algorithmic trading is one of the most prominent applications of AI and machine learning in finance, involving the use of automated systems to execute trades based on predefined criteria and market conditions. The development and implementation of AI driven trading strategies have significantly impacted efficiency and trading performance. AI algorithms, such as deep learning and reinforcement learning, analyze market data to identify patterns and predict price movements, enabling the execution of trades with high speed and accuracy. The integration of AI in algorithmic trading has thus transformed financial markets, enhancing liquidity and stability.

Credit Scoring
Credit scoring is a modern approach to assessing a borrower’s creditworthiness. Unlike traditional credit scoring, which relies on static variables and historical data, AI driven credit scoring uses machine learning algorithms to analyze a wide range of data points, including non-traditional data, to predict a borrower’s likelihood of repaying a loan. Credit score therefore, represents a more comprehensive and dynamic assessment of credit risk, providing lenders with a more accurate and nuanced understanding of a borrower’s financial behavior .

Fraud Detection
The application of AI and machine learning in fraud detection has proven to be highly effective in identifying and preventing financial fraud. Advanced algorithms can analyze transaction patterns and detect anomalies in real-time, flagging potentially fraudulent activities with greater accuracy than manual methods. AI driven fraud detection system have been implemented in various financial institutions, significantly reducing the incidence of fraud and enhancing security measures. The continuous advancement in AI technologies can be seen from the development of more sophisticated anomaly detection models and the integration of AI with blockchain for improved traceability and transparency.

Risk Management
The use of AI and machine learning in risk management has revolutionized the way financial institutions mitigate risks. Advanced algorithms and models allow for the real-time analysis of vast datasets enabling the identification of potential risks and the development of strategies to manage them effectively. Studies have demonstrated the efficacy of AI-driven models predicting credit risks, market volatility, and operational risks, significantly enhancing the precision of risk assessments compared to traditional methods. Case studies illustrate how financial firms has successfully implemented AI and ML technologies to improve their risk management practices, leading to better decision- making and reduced financial losses .
Customer Relationship Management
The integration of AI and machine learning into Customer Relationship Management (CRM) strategies enables financial institutions to move beyond traditional transactional interactions and adopt a more holistic approach to CRM. By leveraging AI-driven insights, financial organizations can segment their customer base more effectively, identify high value customers and tailor marketing campaigns for specific demographics or customer segments. Moreover, AI-enabled CRM systems enable proactive engagement with customers through personalized communications, timely offers, and targeted promotions, leading to increased customer loyalty and retention.
AI-driven CRM solutions enhance operational efficiency within financial institutions by automating repetitive tasks, streamlining processes, and optimizing resource allocation. By automating routine inquiries, such as account inquiries or transaction disputes, AI-enabled CRM systems free up valuable time for customer service representatives to focus on more complex issues and provide personalized assistance.
Automation in Financial Services
Types of Automation
Robotic Process Automation (RPA)
Robotic Process Automation combines Application Programming Interphase (API) and user interface interactions to integrate and perform repetitive tasks between enterprise and productivity applications. By deploying scripts which emulate human processes, RPA tools complete autonomous execution of various activities and transactions across unrelated software systems.
This form of automation uses rule-based software to perform business activities at a high volume, freeing up human resources to prioritize more complex tasks. RPA enables Chief Information Officers (CIOs) and other decision makers to accelerate their digital transformation efforts and generate a higher return on investment for their staff .

Intelligent Automation (IA)
Intelligent Automation consists of a broad category of technologies aimed at improving the functionality and interaction of bots to perform tasks. When people talk about IA, they really mean orchestrating a collection of automation tools to solve more sophisticated problems. IA can help institutions automate a wide range of tasks from simple rules-based activities to complex tasks such as data analysis and decision making . For example, an automative manufacturer may use IA to speed up production or reduce the risk of human error, or pharmaceutical or life sciences company may use intelligent automation to reduce costs and gain resource efficiencies where repetitive processes exist.
Benefits of Automation
Increased Efficiency and Productivity
Through Automation, we can significantly enhance productivity by eliminating the need for manual labor and speeding up processes. Machines and robots are designed to perform tasks faster and more efficiently than humans. It can result in increased output and shorter production cycles.
Cost Reduction
Automation can optimize workflows, eliminate bottlenecks, and reduce wastage of time and resources. By streamlining processes and reducing human intervention, businesses can achieve cost savings through improved efficiency, reduced labor costs, and minimized operational expenses.
Improved Accuracy and Compliance
Automated systems are programmed to perform tasks with precision and consistency. This can lead to improved accuracy and quality of products or services. They can eliminate human errors and deviations, resulting in higher levels of customer satisfaction and reduced rework or defects .
Enhanced Customer Experience
AI-powered solutions enhance the quality and responsiveness of customer service within the financial services industry. Chatbots and virtual assistants equipped with natural language processing capabilities can engage with customers in real-time, providing personalized recommendations, resolving queries, and facilitating seamless transactions. For example, AI-driven chatbots deployed by banks can assist customers with account inquiries, transaction histories, and financial planning advice, thereby enhancing customer satisfaction and loyalty. By leveraging AI technologies, financial institutions can deliver tailored experiences that meet the evolving expectations of digital-native consumers.
AI and Automation in Specific Areas of Finance
Wealth Management
Personalized Investment Advice
AI financial advisors use advanced algorithms and machine learning techniques to provide personalized investment advice and optimized portfolio management services. Armed with vast amount of financial data they continuously learn from, these digital advisors have the ability to manage investments based on calculated predictions for higher returns at lower costs than the traditional human intelligence advisory landscape.
These AI-driven platforms like Wally GPT, Micheal AI, Finchat.i.o, and Jarvis Invest among others operate 24/7 with improved efficiency and accuracy in their decision-making.
Robo Advisors
A robo-advisor is an automated online investment service that uses an algorithm to provide personalized investment advice. It is designed to help investors make sound financial decisions without needing a human advisor. This technology uses advanced software algorithms, machine learning, and artificial intelligence to give investment advice or manage investment portfolios.
Clients who use robo-advisor services provide basic information on their financial goals, timeline, income, liabilities, investments, and savings via an online questionnaire. Robo-advisors can automate investing methods such as real-time portfolio monitoring and rebalancing, tax-loss harvesting, and dividend investing. Such can optimize hundreds of portfolios instantly and accurately.
The most popular robo-advisors in the U.S. include betterment, Schwab intelligent portfolios and Wealthfront, for Africa we have Villhage, Ukonga etc. They can manage portfolios with minimum investments.
Retail Banking
Chatbots and Virtual Assistants
Chatbots are computer programs that interact (e.g., converse and provide answers) with people online by simulating human conversation through text and voice commands. Banking chatbots provide immediate assistance 24/7, reducing wait times, addressing customer inquiries, providing information on account balances and transaction history, and guiding users through various banking processes.
AI virtual assistants are sophisticated applications that leverage AI technologies such as natural language processing (NLP), machine learning and automation. These technologies enable the software to learn from previous interactions and assist in a wide range of duties in the financial industry. These tasks include portfolio analysis, investment recommendations, risk assessment, market trend predictions, answering consumer questions, analyzing real-time information, etc., all while adjusting to the preferences and requirements of individual users.
Personalized Product Recommendations
Personalized product recommendations are data driven, customized suggestions provided to online shoppers by analyzing their browsing history, past purchases, and preferences. These Machine learning recommendations are unique to each user, which enhances their shopping experience by offering relevant and engaging product options.
Insurance
Underwriting and Claims Processing
AI technology can increase efficiency and automate workflows by accelerating underwriting processes, delegating tasks for human attention, offering better data-informed insurance policies faster, and improving customer experiences. With AI, underwriters can accurately pinpoint optimal rates based on the individual customer for optimal risk management. AI based pricing models also help reduce the time it takes to introduce new pricing frameworks across the underwriting lifecycle.
From the moment a customer opens an insurance claim, AI technology can streamline the administrative process through process automation. Employees can use data science and AI solutions to analyze numerical and natural language data, referencing relevant insurance policy information, healthcare forms and other input documents along the way. AI can provide insightful recommendations based on claims management data analysis, helping knowledge workers determine eligible claims and what percentage of claims should be consistently paid out. Machine learning algorithms can spot “red flags” more easily in fraudulent claims and risk management data, giving workers more time to spend on unique cases. The overall result is that high-volume, low-cost insurance claims like broken windshields can be quickly resolved, and knowledge workers can spend more time on more complex claims and fraud detection.
Risk Assessment
Traditional risk assessment methods rely on historical data and human expertise, but AI can process a broader range of factors. AI-enabled risk assessment use new technologies like machine learning, natural language processing (NLP), and big data analytics to process more data sources with higher accuracy and speed. Unlike traditional risk assessment techniques that mostly rely on structured historical data, AI technologies can also leverage unstructured data from a wider range of sources, perform analysis on real-time data, and provide more accurate predictive risk estimates.
Capital Markets
High-Frequency Trading
In the realm of High Frequency Trading (HFT), AI has become a transformative force, redefining traditional practices and setting new standards for efficiency and profitability. In HFT speed is of the essence. AI algorithms have unlocked unprecedented levels of speed and precision that outperform human capabilities. This speed advantage gives AI traders a significant edge, allowing them to capitalize on fleeting opportunities that human traders may miss. AI’s dominance in HFT is further solidified by its advanced algorithmic strategies that have become the new norm in the trending landscape. These algorithms leverage AI’s pattern recognition capabilities to identify subtle market trends and anomalies that human traders might overlook. By processing vast amounts of data with unparalleled speed and accuracy, AI trading systems can develop complex strategies that outperform traditional methods.
Regulatory Compliance
AI is reshaping the compliance landscape by automating routine tasks, analyzing complex datasets, and identifying potential compliance issues before they escalate. This technological advancement offers numerous benefits, including increased accuracy in compliance reporting, enhanced ability to predict regulatory risks, and improved efficiency in compliance-related tasks. One of the key impacts of AI is its ability to handle large volumes of data at unprecedented speed. This capability is critical in compliance, where businesses must often sift through vast amounts of information to ensure adherence to regulatory standards. AI algorithms can quickly analyze this data, flagging anomalies and patterns that might indicate compliance issues. By leveraging historical data and ongoing trends, AI can forecast potential compliance risks, allowing businesses to proactively address them.
How Artificial Intelligence Affects the Financial Sector in Africa
The evolution of financial services, underpinned by the rapid advancements in Artificial Intelligence (AI), is reshaping the landscape of the African financial sector. As the continent grapples with the challenges of financial inclusion, infrastructure development, and regulatory frameworks, AI offers a beacon of hope and a promise of transformative change .
The introduction of AI is fundamentally altering the financial world. AI is a form of technology that confers intelligence on machines. Using machine learning, predictive analytics, and natural language processing, AI has the potential to revolutionize the way institutions operate. Additionally, AI opens up new avenue for customer service, risk management, and business advice. For instance, AI-powered chatbots and virtual helpers help with customer service around the clock, simplifying user interfaces and making it easier to answer questions quickly.
Consequently, they enhance consumer experience and reduce expenses. For instance, in risk management and credit scoring, AI algorithms can examine enormous amounts of data to identify patterns and assess risk levels. This makes financial services available to a larger population. In the investment world, robo-advisors have become popular. They use AI’s analytical capabilities to offer cheap, personalized financial advice. Through these changes, AI is making it easier for more people to use financial services and driving the global financial system to be more open to more people. AI is also changing the way financial markets work. For example, AI has changed how stocks are bought and sold with high-frequency algorithmic trading. AI can analyze vast financial data in milliseconds to identify trends and make trades. This is a substantial improvement over traditional methods making markets move faster, more open and work better. However, increased market speed ushers market stability and systemic risks, requiring protection and strong oversight to avoid these problems.
Regulators worldwide seek to deal with AI’s problems, such as data protection and algorithmic transparency. Accordingly, there should be a balance between encouraging innovation and protecting the financial security and consumer interests in regulations. AI can simplify compliance procedures, monitor financial transactions in real-time for illicit activities, and predict market glitches, making regulators more proactive. In the African market, the African Continental Free Trade Area (AfCFTA), a trade deal that aims to increase trade significantly within Africa, offers unique opportunities for AI. For example, AI can help improve trade logistics by making delivery systems, customs processes, and tracking and tracing more efficient. It can find the best ways to move goods, predict delays, and give traders real-time information. In addition, AI can analyze trade data to identify patterns, trends, and connections. This can help policymakers make better choices and predict and respond to future trends better.
AI-powered systems can make cross-border e-commerce more efficient, a sector expected to grow under the AfCFTA. AI can create personalized product recommendations and automate customer service. In education and training, AI can help people acquire the skills they need for an African economy that works better together. However, for AI to achieve the goals of the AfCFTA, it is essential to have good AI governance and regulation. Furthermore, we need to invest in digital infrastructure and education.
In conclusion, AI is vital to changing how the world’s economic system works. It affects financial services, markets, and regulation. AI is ushering in a new age of innovation and efficiency. However, as AI continues to change how the financial world works, a cautious and thorough approach is needed to make the most of its prospects and manage its risks well. There needs to be strong regulatory frameworks, investments in AI literacy and skills, and a commitment to ethical AI values. These objectives are essential if we want an AI-driven financial future that is both prosperous and sustainable in Africa.
Challenges and Opportunities of AI and Automation in the Finance Service
Ethical Considerations and Bias
While AI is generally considered objective and unbiased, it makes decisions based on data and algorithms without being influenced by personal emotions and biases. AI systems can replicate and amplify biases present in the data used to train them. Failing to conduct a comprehensive investigation of the data utilized to train AI models could result in outliers and spurious patterns in the data leading to AI models producing inaccurate and biased decisions that perpetuate existing biases and discrimination in society. Moreover, historical data largely used for AI and ML training have inherent limitations in fully representing the future, particularly when crucial extreme events are absent from the available financial data. This increases the likelihood of AI model failures during a crisis.
For example, if an AI model is trained on historical loan application data where applications for certain groups of people (such as minorities or low-income people) have been unjustly rejected, the AI model may learn and replicate this bias, even if its designers did not intend to do so. This can lead to certain groups of people being unjustly rejected when applying for loans, further exacerbating social inequality.
Data Privacy and Security
With the development of AI, financial institutions can process and analyze unprecedented amounts of data, which is undoubtedly a huge benefit for improving decision-making efficiency and accuracy, predicting market changes and personalizing services. However, it also raises some important privacy and security issues.
In financial services, the data that AI needs to process often includes sensitive information such as personally identifiable information, financial information, consumption records, and online behavior. While this data, when properly processed, can help financial institutions provide better services, it can pose a serious threat to an individual’s privacy and security if misused or leaked. For example, if a person’s spending records are improperly disclosed, it may lead to fraud or harassment. If financial information is leaked, the consequences can be even more serious.
Job Displacement and Skill Development
Implementing AI on a large scale in the financial sector, particularly in commercial banks, will likely result in job displacement for many workers. As automation of routine tasks replaces human tasks, financial institutes will require fewer employees, with fewer recruitment drives and the potential for early retirements or even layoffs. This could lead to discontent among bank employees, resulting in productivity losses that could offset some of the gains from technological advancement.
Also, the development of advanced AI techniques, coupled with the increased availability of data, has resulted in a growing number of companies and individuals becoming attracted to AI and utilizing it in their operations. However, excessive reliance on AI can present various risks. For instance, it can diminish human skills and discourage people from developing the necessary skills to make decisions independently. Researchers, for example, have pointed out that human skills related to financial forecasting, planning and decision support will soon be in less demand as financial organizations adopt more AI systems.
Future Trends and Innovations
The landscape of algorithmic trading and artificial intelligence (AI) is poised for continuous evolution, driven by advancements in technology, regulatory responses, and the potential for disruptive innovations. Exploring future trends provides insights into the trajectory of these transformative forces. The advent of quantum computing holds the promise of solving complex mathematical problems at unprecedented speeds. In algorithmic trading, quantum algorithms could revolutionize optimization processes and risk management. The ability to perform complex calculations rapidly may lead to more sophisticated trading strategies and enhanced decision-making capabilities.
Machine learning algorithms are expected to become more sophisticated, adapting to changing market conditions with greater agility. Reinforcement learning, in particular, may enable algorithms to continuously learn and optimize trading strategies based on real-time feedback. As machine learning models evolve, they are likely to contribute to more accurate predictions and enhanced trading performance. Incorporating NLP into algorithmic trading systems can revolutionize information processing. Algorithms capable of extracting insights from vast amounts of unstructured data, including news articles and social media, can make more informed trading decisions. NLP may become integral in sentiment analysis, providing a deeper understanding of market sentiment and trends.
As algorithmic trading becomes more reliant on AI, regulators are likely to focus on ensuring ethical and fair practices. Scrutiny over algorithmic bias, transparency, and accountability will likely intensify, leading to the development of regulations that mandate responsible AI usage in financial markets. Given the global nature of financial markets, regulatory bodies may collaborate more closely to establish standardized frameworks for algorithmic trading. Coordinated efforts could enhance cross-border supervision, address regulatory arbitrage, and create a harmonized approach to managing the risks associated with algorithmic trading.
The rise of decentralized finance, powered by blockchain technology, has the potential to disrupt traditional financial systems. Algorithmic trading strategies may integrate with DeFi platforms, enabling peer-to-peer trading, liquidity provision, and decentralized exchanges. This shift could democratize access to sophisticated trading tools and reduce reliance on traditional intermediaries. Addressing the challenge of understanding complex AI models, the adoption of explainable AI in algorithmic trading can enhance transparency. Regulatory bodies and market participants may seek algorithms that provide clear explanations for their decision-making processes, fostering trust and mitigating concerns related to opaque AI systems. Future algorithmic trading systems may prioritize risk-awareness by incorporating real-time risk management mechanisms. These algorithms could dynamically adjust trading strategies based on changing market conditions to mitigate risks and enhance overall portfolio stability.
Conclusion
Artificial intelligence (AI), machine learning (ML), and automation are rapidly transforming the financial services industry, reshaping everything from trading algorithms to customer service. These technologies offer unrivalled efficiencies, enhanced decision-making, and personalized services that were previously unattainable with traditional methods. The adoption of AI and ML in trading algorithms has revolutionized markets by enabling quicker, data-driven decisions that mitigate risks and maximize returns. Automation, particularly in back-office operations, has reduced human error, lowered costs, and streamlined processes, leading to more efficient and scalable financial systems.
Beyond trading, AI-driven customer service platforms, like chatbots and virtual assistants, are providing personalized, 24/7 support, significantly improving customer experiences. These AI systems not only handle routine inquiries but also predict customer needs through advanced analytics, offering tailored financial advice. Moreover, automation is being used to enhance fraud detection and risk management, with AI algorithms analyzing vast amounts of data to identify suspicious patterns and behaviors that human analysts might miss. However, the integration of these technologies into the financial sector also brings challenges, including concerns over data privacy, ethical considerations, and the potential for job displacement. Striking a balance between technological advancement and regulatory frameworks will be key to ensuring that these innovations serve both the financial institutions and their customers effectively and responsibly.

In summary, AI, ML, and automation are reshaping the finance industry at a fast pace. While these technologies present numerous opportunities for growth, efficiency, and enhanced customer engagement, their responsible deployment and ongoing governance will be critical to sustaining long-term benefits. The future of financial services lies in the seamless integration of human expertise and intelligent automation, where financial institutions can remain agile, competitive, and customer-centric in an evolving digital landscape