The Bank of England is initiating a review of artificial intelligence (AI) and machine learning (ML) amid concerns about their potential impact on financial stability.
AI has been utilized in the financial services sector for over a decade, but its adoption has surged recently, driven by advancements in Large Language Models. In its latest Financial Stability Review, the Bank of England notes that AI and ML could offer considerable advantages to the UK’s financial services, such as enhanced operational efficiency, improved risk management, and the creation of new products and services.
However, the report also warns that increased implementation of these technologies could lead to systemic financial stability risks. This includes the potential for amplifying herding behavior, fostering procyclical actions, and increasing cyber risks and interconnectedness within financial systems.
To address these challenges, the Bank of England plans to examine the financial stability implications of AI and ML in 2024, aiming to ensure that the UK’s financial system remains resilient to these risks.
Andrew Bailey, Governor of the Bank of England, emphasized the need for a cautious approach to AI, stating, “We obviously have to go into AI with our eyes open.” He added, “It’s not out of control in the sense of 2001: A Space Odyssey. The complexity of these systems makes it difficult to fully understand what the black box delivers.” He also pointed out the issue of “hallucinations,” where generative AI produces unexpected outcomes, saying, “You can’t have that sort of thing happening” in financial institutions.