The banking industry is actively pursuing the integration of AI technologies, mainly due to their great potency to enhance operational efficiency, improve customer service, and optimise internal processes. Contrarily, the application of AI in the banking sector gives rise to a variety of legal issues which raise the need for attention and the development of an appropriate legal framework. AI is helpful in analysing a lot of data related to borrowers for correct credit assessment, thus diminishing the possibility of defaults. AI-based systems detect real-time fraud in customer transactions, ensuring much safer financial transactions at the fastest speeds. AI is used to analyse the needs of customers to offer them financial products and services personalised to their needs. This service allows automated systems to provide investment and asset management advice, making it possible for this service to be available to a wide range of customers. Banking uses AI in many ways, including processing vast volumes of personal data related to customers. There is a need for strict adherence to legislation on data protection. For instance, in Europe, there are requirements associated with GDPR, and similar regimes exist elsewhere. In particular, AI has to be used according to ethical standards: first, regarding the transparency of algorithms being used, and second, to avoid bias while decisions are made. Artificial Intelligence can open a significant avenue for innovation and enhancements in banking services. In that direction, however, a clear legal framework is needed to regulate the use of data, provide consumer protection, and avoid possible abuse arising from using AI in banking. Such right legal frameworks will help maximise the potential of AI in banking while minimising risks, thus helping maintain customer trust.