Artificial intelligence (AI) could pose a risk to the financial system, international standard-setters warned on Thursday, as they probe an innovation that’s seen significant interest among banks and other financial firms.
Jurisdictions such as the EU have taken the lead in regulating the potentially transformational technology – but are worried about how to apply rules in the already highly regulated finance sector.
AI may “potentially amplify certain financial sector vulnerabilities and thereby pose risks to financial stability”, despite benefits for operational efficiency, personalisation and compliance, the Financial Stability Board said.
Multiple financial firms using the same AI models could lead market participants to herd, amplifying swings in financial markets, the FSB said, and the outage of a single provider could have widespread implications.
Generative AI, which produces new text, images or videos based on user prompts, “could increase financial fraud and the ability of malicious actors to generate and spread disinformation on financial markets,” added the report.
The document, which calls on global regulators to check whether legal frameworks are up to scratch, follows a June consultation paper from the European Commission, which cited the risk of bias or panic in financial markets – as well as tendency of AI to produce inaccuracies or downright nonsense.
The FSB is a Basel-based international institution whose members include regulators and central bankers from across the world, including the UK’s Financial Conduct Authority and European Central Bank.
In a hearing last week to become the EU’s next financial services commissioner, former Portuguese finance minister Maria Luís Albuquerque told MEPs the tech had pros and cons.
“The risks for individuals are already being addressed by the AI Act,” she said, adding that "there are a lot of opportunities to use AI not only for fraud detection, but also to improve the necessary cooperation and exchange of information.”