Bank of England Governor Andrew Bailey warned on Monday that rapidly advancing artificial intelligence models could increase cyber risks and trigger disruption across the global financial system, particularly because financial institutions rely heavily on a small number of technology providers.
In a two-page letter to G20 finance ministers and central bank governors, Bailey, writing in his capacity as chair of the Financial Stability Board, said the emergence of so-called frontier AI models was showing increasingly sophisticated autonomous and problem-solving capabilities.
He identified the impact of advanced AI on cybersecurity as the “most immediate concern” for financial stability, warning that the technology could accelerate the scale and sophistication of attacks against financial institutions and critical infrastructure.
“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 said.
The warning comes as banks, insurers, asset managers and other financial institutions increasingly deploy AI for fraud detection, trading, customer service, risk management and other operations. The same technology is also being used by cybercriminals to automate attacks, identify vulnerabilities and potentially circumvent existing security controls.
Bailey said financial institutions and technology providers would need to strengthen their ability to identify vulnerabilities, respond to attacks and recover from disruptions.
They should also “and prepare for more severe scenarios involving simultaneous disruption across multiple firms or shared technology dependencies,” Bailey said.
The concentration of financial institutions’ reliance on common technology providers is a particular concern for regulators. An outage or successful cyberattack affecting a major cloud, software or infrastructure provider could potentially disrupt multiple financial firms at the same time, creating risks that extend beyond individual institutions.
Bailey also raised concerns about the ability of governments to manage increasingly powerful AI systems.
“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 added.
The comments add to growing international concern over the potential systemic risks associated with increasingly capable AI models. They also come after high-profile tests involving advanced models from AI companies including Anthropic and OpenAI raised questions about whether existing safeguards are sufficient as AI systems become more autonomous.
For financial regulators, the challenge extends beyond individual AI applications. Increasingly capable models could affect market behaviour, cybersecurity, operational resilience and the infrastructure on which financial institutions depend.
Bailey also highlighted risks unrelated to AI, pointing to “fragilities” in sovereign debt markets, increased leverage among investors in equity markets and stretched asset valuations, particularly those linked to artificial intelligence.
The warnings come as investors have poured substantial amounts of capital into companies associated with AI, driving sharp increases in valuations across parts of the technology sector. Regulators have increasingly warned that concentrated exposures and high valuations could amplify market corrections if expectations for AI-driven growth deteriorate.
The Financial Stability Board, established after the 2008 global financial crisis, monitors vulnerabilities in the international financial system and coordinates recommendations among national authorities.
The United States is hosting the G20 summit in North Carolina this week, bringing together finance ministers, central bank governors and other senior officials to discuss global economic priorities.
Bailey’s warning underscores a growing dilemma for policymakers: AI could improve productivity and strengthen financial services, but its increasing sophistication could also create new channels through which cyberattacks, operational failures and market shocks spread across borders.
The challenge for regulators will be to ensure that the financial system can capture the benefits of increasingly capable AI without allowing its risks to become a source of systemic instability.
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Faustine Ngila is the AI Editor at Impact Newswire, based in Nairobi, Kenya. He is an award-winning journalist specializing in artificial intelligence, blockchain, and emerging technologies.
He previously worked as a global technology reporter at Quartz in New York and Digital Frontier in London, where he covered innovation, startups, and the global digital economy.
With years of experience reporting on cutting-edge technologies, Faustine focuses on AI developments, industry trends, and the impact of technology on society.
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