Global watchdog calls for monitoring of robots’ financial markets risk

The world’s top central bankers have warned that the spread of artificial intelligence could pose a threat to financial stability.

The Financial Stability Board (FSB) said yesterday it was crucial for regulators to monitor the growing adoption of AI and machine learning technology across the financial industry, from hedge funds to brokers to banks.

In its first report on the role of robots in finance, the FSB – which is chaired by Bank of England governor Mark Carney – said AI has the potential to make financial services significantly more efficient, yet also comes with considerable risks.

“A few large technology firms” central to the AI services could become “systemically important players” in the financial system, the FSB said, highlighting “the potential for natural monopolies or oligopolies”.

The report added: “These competition issues – relevant enough from the perspective of economic efficiency – could be translated into financial stability risks if and when such technology firms have a large market share in specific financial market segments.

“These third-party dependencies and interconnections could have systemic effects if such a large firm were to face a major disruption or insolvency.”

Regulators are also concerned that major suppliers of AI and machine learning tools to financial services firms may “fall outside the regulator perimeter or may not be familiar with applicable law and regulation… These servicers and providers may not be subject to supervision or oversight.”

Companies rushing to adopt AI risk being caught up in an “arms race,” the report says, as “market participants increasingly find it necessary to keep up with their competitors’ adoption of AI and machine learning, including for reputational reasons (hype).”

However, the potential benefits of AI and machine learning to the financial sector are believed to be considerable, allowing companies to process information more quickly and improve customer interactions – delivering swifter credit decisions, for example.

A separate report published by giant consultancy Accenture earlier this year found that three quarters of bankers believe AI will become the primary way lenders interact with their customers in the next three years.

AI could also improve regulatory compliance, the FSB said yesterday. The market for technology in regulation, known as RegTech, is forecast to reach $6.45bn (£4.9bn) by 2020, the report said, with an eye-watering growth rate of 76 per cent per year.

Furthermore, AI could create “new and unexpected forms of interconnectedness”, the report said, by tapping institutions’ previously unrelated data sources.

Regulators themselves can benefit from AI, with the FSB citing its potential to improve macroprudential surveillance, as well as the detection of fraud and money laundering.