The integration of Artificial Intelligence (AI) in the banking sector represents a significant leap forward in the realms of risk management and fraud detection. This paper explores the transformative effects of AI in these areas, emphasizing both the improvements and the challenges brought about by its implementation. In risk management, AI's influence is diverse and profound. Advanced algorithms allow for the creation of more sophisticated credit risk assessment models by detecting subtle patterns in large datasets that might be overlooked by human analysts. This capability enhances the accuracy of credit risk evaluations. Additionally, real-time monitoring of transactions helps in the immediate mitigation of risks, which is particularly crucial when dealing with market and liquidity risks. AI also significantly aids in automating compliance with regulatory requirements, reducing the likelihood of human errors and enabling quicker adaptation to changes in regulations. Operational risks are also minimized through AI's ability to automate routine tasks and strengthen cybersecurity measures. AI systems are adept at identifying anomalies that may indicate fraud by scrutinizing transaction data and customer behavior. The predictive capabilities of AI enable banks to anticipate and prevent potential fraud schemes. Moreover, AI systems can adapt and evolve in response to changing tactics used by fraudsters, maintaining their effectiveness over time. AI enhances customer authentication processes through the use of advanced technologies such as biometric verification, providing an additional layer of security. However, the implementation of AI in banking raises significant concerns regarding data privacy and security due to the sensitive nature of banking information. Furthermore, AI models can inherently carry biases that lead to discriminatory outcomes, necessitating ongoing monitoring and adjustments to these models. The complexity and lack of transparency in AI systems also pose challenges, particularly when AI-driven decisions have significant impacts on customers. The evolving regulatory frameworks for AI in banking present another layer of complexity, as banks must continuously adapt to comply with new and changing regulations. This paper highlights the need for a balanced approach to leveraging AI's potential in banking, addressing both its transformative benefits and the ethical and regulatory challenges involved. By doing so, banks can harness AI to enhance their operations while ensuring fairness, transparency, and compliance with regulatory standards.