The Bank of England has embarked on a detailed examination of the burgeoning deployment of artificial intelligence within the realm of financial institutions. Sam Woods, the Deputy Governor, has expressed that imposing regulations specifically tailored to AI may not constitute the most prudent course of action.
The utilization of machine learning and certain AI variants for the purposes of detecting fraudulent activities and money laundering has become commonplace. However, the exploration of AI’s potential in other areas remains in its nascent stages, according to Woods.
Woods, speaking at a media briefing post the dissemination of the BoE’s most recent Financial Stability Report, emphasized the Bank’s stance of maintaining a technology-neutral approach in all regulatory measures. “Regulations exclusively focused on AI in finance may not represent the optimal path,” he elucidated.
The Bank’s Financial Policy Committee plans to scrutinize AI and machine learning in the forthcoming year, evaluating their potential threats to the stability of the financial system, in collaboration with other regulatory bodies.
The committee acknowledges that AI and machine learning could usher in substantial enhancements in the financial sector, notably in augmenting operational efficiency, fortifying risk management, and introducing novel products and services. Nonetheless, its widespread adoption could also spawn systemic risks, such as exacerbating herd mentality or escalating cyberattack vulnerabilities.
Andrew Bailey, the Governor of the BoE, advocated for a cautious and informed approach towards AI, recognizing its potential to profoundly influence economic growth and the structural evolution of economies. He stressed the necessity for firms employing AI to possess a thorough comprehension of its mechanisms.
Woods also mentioned that the BoE might deliberate on the actions that senior financial sector managers, accountable to regulators, should undertake to ensure the outputs of AI processes are justifiable and reliable.
With the BoE recently acquiring new regulatory authority over how banks utilize third-party services, like cloud computing, for critical operations, Woods suggested that if the financial system becomes significantly reliant on an AI technology provider, such an entity could potentially fall under the purview of these new regulatory powers.
The article was originally composed by Huw Jones, with additional contributions from Andy Bruce and Suban Abdulla, and was edited by David Milliken and Christina Fincher.
