LONDON — Rapid advances in artificial intelligence could increase cyber risks to the global financial system and potentially contribute to a disorderly correction in financial markets, Bank of England Governor Andrew Bailey warned in a letter to Group of 20 finance ministers and central bank governors, CNBC reported.
Bailey, writing as chairman of the Financial Stability Board, said Monday that the emergence of so-called frontier AI models — the most advanced artificial intelligence systems — is creating new risks as the technology demonstrates increasingly sophisticated autonomy, problem-solving capabilities and potential threats.
Bailey identified cybersecurity as the most immediate financial stability concern associated with frontier AI.
‘Altered Speed, Scale & Economics’
“Frontier AI may have the ability materially to alter the speed, scale and economics of cyber risk, which could undermine market confidence system-wide, especially due to highly concentrated third-party service providers,” Bailey wrote.
The Financial Stability Board is an international organization that monitors the global financial system and coordinates financial stability policies among national authorities.
Financial Institutions Urged to Prepare
Bailey said recent developments have highlighted shortcomings in how some countries oversee the development and deployment of advanced AI models.
“Recent developments have also highlighted to me that many jurisdictions do not have the protocols in place to manage the development, release, and deployment of advanced frontier AI models, heightening risks for the financial sector and beyond,” he wrote.
The warning follows a series of concerns about the capabilities and security risks associated with increasingly powerful AI systems, CNBC reported.
Bailey said financial institutions and their technology providers will need to strengthen vulnerability management as well as their ability to respond to and recover from cyber incidents.
They also should prepare for more severe scenarios in which multiple financial institutions or shared technology providers are disrupted simultaneously, he said.
Such risks could be magnified by the financial industry’s reliance on a relatively small number of third-party technology providers, potentially allowing an incident affecting one provider to spread across multiple institutions.
AI Valuations Among Other Risks
Bailey’s concerns extend beyond the cybersecurity implications of AI.
He also pointed to fragilities in sovereign debt markets, increased use of leverage by investors in equity markets and stretched asset valuations, particularly those involving AI-related investments.
Those vulnerabilities could increase the risk that a shock leads to a disorderly market correction, according to the letter.
The warning comes as finance ministers, central bank governors and other senior officials from the world’s largest economies gather in Asheville, N.C., for a G20 meeting hosted by the United States.
Bailey’s letter outlined issues the Financial Stability Board believes policymakers should consider as they discuss risks facing the international financial system.
