European banks are increasing investment in risk management, compliance and artificial intelligence as competitive pressure from fintechs and non-bank lenders intensifies, according to new research from Moody’s.
The study found that 61% of European banks regard growing competition from new market entrants as a key challenge, compared with 52% in both the US and Asia-Pacific. In response, European institutions are placing greater emphasis on strengthening risk and compliance capabilities as a competitive differentiator.
Around 50% of European banks are enhancing their risk management capabilities, slightly ahead of 49% in the US and 42% in APAC. Similarly, 37% of European banks are increasing compliance capabilities, compared with 35% in the US and 30% in APAC.
Financial crime remains another major concern. Moody’s found that 66% of European banks identified increasing fraud and sanctions enforcement as a challenge, compared with 44% in the US and 54% in APAC. Around 60% of European risk professionals are focusing on fraud and financial crime risk, while 69% of compliance professionals are prioritising financial crime compliance.
At the same time, legacy technology and fragmented data continue to constrain decision-making. 51% of European banks said they struggle to plan and execute strategy amid volatility, compared with 36% in the US and APAC. Moody’s also found that 42% are unable to obtain an integrated, cross-functional view of risk, while another 42% reported that internal misalignment slows decision-making.
Artificial intelligence is emerging as a major area of investment. 58% of European banks are investing in AI for data analytics and insights, ahead of 46% in the US and 49% in APAC. The objective is increasingly to connect fragmented data across origination, credit, finance and risk to create a more integrated view of exposures.
Among European risk professionals, 47% are investing in stress testing and scenario modelling, 47% in operational risk, and 43% in cross-functional risk integration. Moody’s said these investments reflect the growing complexity of operational, regulatory and non-financial risks confronting banks.
However, European banks appear to be adopting AI cautiously in regulated workflows. Governance, explainability and human oversight remain central to deployment strategies, particularly because of requirements arising from frameworks such as the EU AI Act and the Digital Operational Resilience Act (DORA).
The research found that 70% of compliance professionals at European banks are investing in regulatory compliance, compared with 53% in the US and 63% in APAC. Another 48% are investing in compliance governance, compared with 40% in both the US and APAC.
Moody’s findings suggest that European banks increasingly view robust risk management not simply as a regulatory requirement, but as a means of supporting faster decisions, improving resilience and competing more effectively in a rapidly changing financial services market.
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