Financial Stability Board Report on Financial Stability Implications of Artificial Intelligence

The Financial Stability Board has published a report outlining recent developments in the adoption of AI in finance and their potential implications for financial stability. The report notes that AI offers benefits from improved operational efficiency, regulatory compliance, personalised financial products, and advanced data analytics. However, AI may also amplify certain financial sector vulnerabilities and thereby pose risks to financial stability. According to the FSB, AI-related vulnerabilities with the potential to increase systemic risk include: (i) third-party dependencies and service provider concentration; (ii) market correlations; (iii) cyber risks; and (iv) model risk, data quality, and governance. In addition, GenAI could increase financial fraud and disinformation in financial markets. Misaligned AI systems that are not calibrated to operate within legal, regulatory, and ethical boundaries can also engage in behaviour that harms financial stability. From a longer-term perspective, AI uptake could drive changes in market structure, macroeconomic conditions, and energy use that may have implications for financial markets and institutions.

The report notes that existing regulatory and supervisory frameworks address many of the vulnerabilities associated with AI adoption. However, more work may be needed to ensure that these frameworks are sufficiently comprehensive.

The report calls on the FSB, standard-setting bodies, and national authorities to:

• consider how to address data and information gaps to better monitor AI adoption and assess the related financial stability implications.
• assess whether current financial policy frameworks are sufficient to address AI-related vulnerabilities, both at domestic and international level.
• enhance regulatory and supervisory capabilities, for example by sharing information and good practices across border and sectors as well as leveraging AI-powered tools.

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