Global financial regulators are calling for closer monitoring of Artificial Intelligence (AI) risks as banks and other financial institutions rapidly increase their adoption of the technology. While banks are generally optimistic that AI will boost productivity, regulators fear its potential impact on financial stability.
The Risk of Herd Behavior
The Financial Stability Board (FSB), the risk watchdog for the G20, published a report warning that heavy reliance on the same small number of AI models and specialized hardware could lead to herd-like behavior across the financial system. The FSB noted that if too many institutions use the exact same technology, this standardization "can create vulnerabilities if there are few alternatives available."
Urgent Need for Upgrades
A separate study from the central bank umbrella group, the Bank for International Settlements (BIS), emphasized the "urgent need" for central banks and financial supervisory authorities to "raise their game" regarding AI.
The BIS stressed that regulators must upgrade their own capabilities both to better understand the effects of rapid technological advancements and to become more capable users of AI technology themselves. This regulatory push comes as the United States, China, and other global powers race to lead the development of revolutionary machine-learning technologies.
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