Global financial stability organization highlights pros and cons of technology
As the financial services sector continues to consider how artificial intelligence can be used to boost productivity and profitability, there’s a warning about its potential risks to financial stability.
The global Financial Stability Board says that, while the tech comes with great benefits for the sector, it also poses some threats that could lead to weakened financial stability.
In a new report called The Financial Stability Implications of Artificial Intelligence, the FSB says that financial services firms are typically using AI to enhance operational improvements and regulatory compliance.
The use of Generative AI for document summarization, information retrieval, and code generation is growing but firms are generally taking a cautious approach, although it notes that the potential for rapid adoption is clear, especially in areas such as personalization of products and advanced data analytics.
AI is also being used for supervision but this is one area that the report highlights as potentially risky due to rapid adoption and limited data on AI usage, posing “challenges for monitoring vulnerabilities and potential financial stability implications.”
The use of AI could “amplify certain financial sector vulnerabilities and thereby pose risks to financial stability,” the report states.
Some of these vulnerabilities could also increase systemic risk including:
- third-party dependencies and service provider concentration
- market correlations
- cyber risks and
- model risk, data quality and governance.
The FSB warns that financial fraud and disinformation in financial markets could be exacerbated by GenAI while systems that are not aligned to operate within legal, regulatory, and ethical boundaries can also engage in behaviour that harms financial stability.
There is also longer-term risk of changes to market structure, macroeconomic conditions, and energy use that could impact financial markets and institutions.
The organization says that regulators need to ensure that frameworks around the use of AI are sufficiently comprehensive.
A recent report suggested that more than half of alts investors believe that AI is likely to displace industry jobs within the next five years.
