FSB weighs financial stability implications of AI

The Financial Stability Board, an international organization that coordinates the work of national financial authorities and international standard-setting bodies and develops and promotes the implementation of effective regulatory, supervisory, and other financial sector policies in the interest of financial stability, has issued a report, "The Financial Stability Implications of Artificial Intelligence," which outlines recent developments in the adoption of artificial intelligence (AI) in finance and their potential implications for financial stability.

The FSB stated that widespread adoption and more diverse use cases of AI have prompted the FSB to revisit its 2017 report on AI and machine learning in financial services. Financial firms currently use AI mainly to enhance internal operations and improve regulatory compliance, but generative AI (GenAI) and large language models have given rise to new use cases, such as document summation, information retrieval, and code generation. While many financial institutions appear to be taking a cautious approach to using GenAI, interest remains high and the technology’s accessibility could facilitate more rapid integration in financial services.

The report notes that—

• The rapid adoption of AI offers several benefits but may also amplify certain financial sector vulnerabilities, such as third-party dependencies, market correlations, cyber risk and model risk, potentially increasing systemic risk.
• While existing financial policy frameworks address many of the vulnerabilities associated with use of AI by financial institutions, more work may be needed to ensure that these frameworks are sufficiently comprehensive.
• Financial authorities should enhance monitoring of AI developments, assess whether financial policy frameworks are adequate, and enhance their regulatory and supervisory capabilities including by using AI-powered tools.