Bank of England Governor Andrew Bailey has warned that increasingly sophisticated artificial intelligence systems could create new threats to global financial stability by dramatically increasing the speed and scale of cyber risks.
Bailey raised the concerns in a letter to G20 finance ministers and central bank governors ahead of their meeting in North Carolina, according to The Guardian.
As chair of the Financial Stability Board (FSB), Bailey said so-called “frontier” AI models — the most advanced systems currently being developed — were demonstrating increasingly sophisticated levels of autonomy, problem-solving ability and potential threat capabilities.
He warned that the financial sector could be particularly vulnerable because banks, markets and financial services are deeply interconnected, meaning a significant cyber incident could spread rapidly across institutions and jurisdictions.
“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.
He also expressed concern that many countries had yet to establish adequate protocols governing the development, release and deployment of advanced AI models, calling for coordinated international measures to ensure such systems are introduced safely and responsibly.
Bailey’s warning extended beyond cybersecurity. He highlighted growing leverage in bond and equity markets alongside elevated valuations in highly concentrated sectors, with some of those valuations being fuelled by investor enthusiasm surrounding AI.
The combination could leave financial markets vulnerable if a major economic or financial shock simultaneously exposed several weaknesses, he said.
“I remain concerned therefore that a large shock or combination of shocks could concurrently trigger multiple vulnerabilities,” Bailey said.
The warning places AI alongside more traditional financial risks on the agenda for international regulators as governments and central banks consider how rapidly advancing technology could affect the resilience of the global financial system.
Bailey has served as Bank of England governor since March 2020 and became chair of the FSB last year. The international body coordinates national financial regulators and global standard-setting organisations in efforts to identify and address risks to financial stability.