Post by : Mumtaaz
Qadiri
Financial regulators worldwide have highlighted the need for closer monitoring of artificial intelligence (AI) risks as banks and other financial institutions increasingly adopt AI technologies. While banks see AI as a tool to improve productivity and efficiency, regulators warn that its widespread use could pose new challenges to financial stability.
Potential Risks of AI in Banking
The G20’s Financial Stability Board (FSB) reported that if many institutions rely on the same AI models or specialised hardware, it could create herd-like behaviour. Such uniformity may amplify vulnerabilities, as fewer alternatives would exist if issues arise in the technology or models. The FSB emphasized that this concentrated reliance on AI could increase risks to market stability.
Central Banks Urged to Strengthen Capabilities
A study by the Bank for International Settlements (BIS) stressed the urgent need for central banks and financial supervisors to upgrade their knowledge and tools related to AI. Regulators must not only observe the effects of AI on financial markets but also adopt technological solutions to monitor and manage emerging risks effectively.
AI and Cybersecurity Threats
The FSB noted that financial institutions could face higher risks of AI-driven cyberattacks and fraud. The advanced capabilities of AI could be exploited by malicious actors, potentially causing significant disruptions and financial losses if safeguards are not strengthened.
Global Race for AI Leadership
Countries including the United States and China are racing to lead the development of AI technologies, particularly in machine learning. This global competition increases the urgency for regulators to implement robust frameworks that ensure the safe and responsible use of AI in the financial sector.
Current Regulatory Measures
Some regions have already started regulating AI use in finance. The European Union introduced the Digital Operational Resilience Act (DORA) in January, aiming to ensure that financial entities can withstand operational and technological risks, including those associated with AI adoption.
While AI offers potential benefits such as efficiency gains and improved decision-making, regulators emphasize the need for careful monitoring to prevent systemic risks. Ongoing research and policy development aim to ensure AI adoption does not inadvertently destabilize financial markets or expose institutions to unforeseen risks.
Regulatory authorities worldwide are considering measures to strengthen oversight of AI technologies in finance. The focus will be on improving supervision, implementing risk mitigation strategies, and ensuring that the rapid adoption of AI complements stability, security, and public trust in financial systems.
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