AI's Game-Changing Influence on Financial Stability: Bank of England Report Unveils Shocking Findings
Published on: March 10, 2024
The Bank of England is embarking on a comprehensive review of artificial intelligence and machine learning within the financial sector. This move comes amid growing concerns that the rapid advancement of these technologies could pose threats to the UK’s financial stability.
AI and machine learning have been integral in the City for over a decade, aiding in crucial tasks such as fraud detection and anti-money laundering efforts. Recently, the field has seen a surge in interest due to advancements in technology, increased data availability, and reduced computing costs. This heightened attention has led to more widespread adoption across the sector.
Despite most firms claiming that their use of these technologies is relatively low risk, the Bank’s Financial Policy Committee (FPC) cautions that broader implementation could introduce systemic risks to financial stability. One significant concern is the potential for 'herding behaviour', where numerous firms make similar financial decisions, potentially distorting markets. Additionally, the FPC highlights the increased vulnerability to cyber threats as reliance on these technologies grows.
The evolving landscape also brings new AI and data providers to the fore, potentially making them key players in financial markets. This emergence necessitates closer regulatory scrutiny. In response, the Bank of England, along with its Prudential Regulation Authority and the Financial Conduct Authority, is set to release a consultation paper focusing on these 'critical third parties' later in the month.