Bank Of England to Assess Risks Posed by AI

As AI becomes mainstream, the Bank of England's (BOE) Financial Policy Committee is heightening its focus on the systemic risks emerging from AI's expanding presence in the financial sector.

The central bank has initiated an official investigation into these concerns, specifically highlighting the potential for "herding behavior" and the overarching threats to system-wide financial stability that AI might pose.

In collaboration with the Prudential Regulation Authority and the Financial Conduct Authority, the bank is set to launch a consultation paper this month. This initiative aims to thoroughly examine the impact of AI on financial markets.

This move follows the Bank's discussion paper released in October last year, which debated the merits of adopting new AI-specific regulations against relying on existing frameworks.

The 2022 discussion paper underscored the dual nature of AI in finance: its potential to enhance decision-making and pricing efficiency, counterbalanced by risks to system resilience and efficiency.

Feedback from industry experts, banks, and technology providers to last year's paper suggests that the industry believes current governance structures sufficiently address AI-related risks.

However, the same stakeholders expressed concerns over the use of third-party models and data, advocating for additional regulatory guidance in this area.

The upcoming consultation paper will concentrate on the implications of "critical third parties" and the broader risks associated with AI's escalating use in finance. Stakeholders are against crafting a specific regulatory definition for AI. They favor an approach based on principles or risk assessment, steering clear of overly prescriptive measures.