Fitch says AI poses moderate disruption risk to wealth managers, retail banks

Fitch Ratings said in a report published Oct. 22 that AI poses a moderate business disruption risk to financial institutions over the next five years, and it scored retail banks, private banks and wealth managers 40 on a 0 to 100 scale.12

Fitch said retail banks' mass-market orientation leaves them exposed to AI-enabled fintechs and digital platforms competing on unsecured consumer lending, payments, deposits and basic wealth advice, and that loss of deposits could affect funding costs and ultimately profitability.1 For wealth managers, Fitch said AI tools could automate or cut the cost of investment advice, portfolio construction, research support and advisory execution, creating fee pressure and commoditization of advice.1

A score of 40 signals the potential for a negative outlook and a possible one-notch downgrade for a typical issuer under an adverse scenario, Fitch said, according to InvestmentNews.1

Corporate and investment banks and all insurance sub-sectors scored 20, which Fitch tied to product complexity, bespoke human judgment and high barriers to entry for banks.1

Fitch listed mitigants as regulatory barriers to entry, capital requirements, proprietary data, established client franchises and the ability to build in-house AI capabilities, and said it does not expect AI to drive sector-wide rating actions over the next five years.1

Fitch said banks serving households and small and midsize businesses are most exposed because their products are "mostly standardized, high volume, and easily replicable," and that the impact depends on how quickly customers adopt AI-led service models.2