The impact of artificial intelligence on financial stability

The rapid adoption of AI in the financial sector means that authorities should address monitoring information gaps, assess the adequacy of current policy frameworks, and enhance supervisory and regulatory capabilities.

This report revisits the 2017 FSB report on AI and machine learning in financial services, summarizes recent progress, explores use cases and drivers of adoption in the financial sector, and explores new potential benefits and AI-related vulnerabilities in the financial sector.

Over the past few years, technological advances and increases in computing power have driven the adoption of AI by financial firms and regulators. AI offers many benefits, such as improved operational efficiency, enhanced regulatory compliance, customized financial products, and improved analytical capabilities. The range of use cases has also become more diverse with the emergence of generative artificial intelligence (GenAI) and large language models.

While AI offers many benefits, such as improved operational efficiency, enhanced regulatory compliance, personalized financial products, and advanced data analytics, it may also exacerbate vulnerabilities in certain financial sectors. AI-related vulnerabilities are particularly likely to increase systemic risks, including: (i) third-party dependencies and concentration of service providers; (ii) market correlation; (iii) cyber risks; and (iv) model risks, data quality, and governance. GenAI also increases the likelihood of financial fraud and disinformation in financial markets. If AI systems are not adjusted according to legal, regulatory, and ethical boundaries, they may act in a way that undermines financial stability. In the long run, the application of AI may also drive changes in market structure, macroeconomic conditions, and energy use, with implications for financial markets and institutions.

Although existing regulatory frameworks have addressed many vulnerabilities associated with the application of AI, more work is needed to ensure that these frameworks are effective. The report calls on national financial authorities and international institutions to strengthen monitoring of AI developments, assess the adequacy of financial policy frameworks, and enhance regulatory capacity, including through the use of AI-driven tools.