Bank of England Governor Andrew Bailey has warned that rapidly advancing frontier artificial intelligence models could create new risks for the global financial system by increasing the speed, scale and sophistication of cyberattacks.
Bailey, who also chairs the Financial Stability Board, raised the concerns in a letter to G20 finance ministers and central bank governors ahead of their meeting in Asheville, North Carolina. He identified the impact of frontier AI on cyber risk as the most immediate AI-related concern for the financial system.
According to the Financial Stability Board, increasingly capable AI models are demonstrating greater autonomy, problem-solving abilities and cyber capabilities. Bailey warned that these developments could materially change the economics of cyberattacks, potentially allowing vulnerabilities to be identified and exploited faster and at greater scale.
The concern is particularly significant for financial institutions because banks, markets and payment infrastructure rely on interconnected digital systems and shared technology providers. A vulnerability affecting widely used software or a critical third-party provider could therefore create disruption across several institutions at the same time.
The Bank of England has separately said that recent frontier AI models have become increasingly capable of identifying and exploiting software vulnerabilities across multiple stages of an attack. While the same technology could strengthen cyber defences, it could also increase the sophistication and impact of attacks against financial institutions and market infrastructure.
Bailey called for authorities to support the safe and responsible release and deployment of advanced AI models. He also said financial institutions should strengthen their ability to respond to and recover from cyber incidents while ensuring that critical third-party technology providers remain resilient.
The warning comes amid wider concerns about vulnerabilities across global financial markets. The Financial Stability Board pointed to risks including stretched asset valuations, weaknesses in sovereign debt markets and private credit, as well as increasing leverage in bond and equity markets.
AI-related optimism has also contributed to elevated valuations and market concentration in parts of the technology sector, which the FSB said could amplify the effects of a future market correction.
Despite the risks, regulators have acknowledged the potential benefits of AI for financial services. The Bank of England has said the technology could improve productivity, cyber defence, decision-making and business processes across the economy.
Bailey’s latest warning instead focuses on ensuring that financial institutions and regulators keep pace with rapidly improving frontier models. The FSB said AI-related risks can cross national borders, increasing the need for coordination between governments, regulators, financial institutions and technology providers.
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