The Bank of England’s Financial Policy Committee (FPC) has expressed concerns about the integration of artificial intelligence (AI) into financial markets, warning that its rapid adoption could pose risks to financial stability.

As AI-powered trading and investment strategies become more prevalent, billions are being invested in these technologies worldwide. Regulators are now faced with the challenge of fostering innovation while ensuring that financial markets remain stable. According to experts, the FPC is particularly concerned about the potential for AI model flaws or reliance on inaccurate data, which could result in miscalculations of financial risks. Additionally, the widespread use of similar AI-driven models could lead to synchronised trading behaviours, potentially amplifying market volatility during times of stress.

Another issue raised by the Committee is the financial sector’s reliance on a small number of AI vendors. If a major provider of AI-driven financial tools were to experience an outage, it could significantly disrupt critical operations such as time-sensitive transactions. This highlights the need for robust contingency planning to prevent disruptions from cascading through the financial system.

The Committee also acknowledged AI’s role in enhancing cybersecurity but warned that the same technology could be leveraged by bad actors to launch more advanced cyberattacks on financial institutions. To address these emerging threats, continuous monitoring and enhanced risk mitigation strategies may be necessary.

“The effective monitoring of AI-related risks is essential to understand whether additional risk mitigations might be warranted in support of safe innovation, what they might be, and at what point they may become appropriate,” the Committee stated, emphasising the importance of maintaining oversight as AI continues to reshape financial markets.