The Bank of England will examine the financial stability risks posed by artificial intelligence in an effort to keep regulators’ eyes open to the technology’s threats.
Andrew Bailey said policymakers were “learning at speed” about the impact of AI on the economy and financial sector, leading regulators to expand their remit to include technology from next year.
The governor of the Bank of England said it was “critical” for companies that used AI to understand the nature of the tools in areas like algorithmic trading in financial markets. Otherwise “it is a recipe for trouble”, he said.
In its latest financial stability report, the Bank’s financial policy committee, which identifies and monitors risks, said it would “consider the financial stability risks of AI and machine learning in 2024, and alongside other relevant authorities would seek to ensure that the UK financial system is resilient to risks that may arise from widespread adoption of AI and machine learning”.
AI and machine learning has been used by financial companies for at least a decade, such as to detect fraud and money laundering. Adoption of the technology has become more widespread, with “profound implications” for the economy, Bailey said.
“AI is something that I think we have to embrace with our eyes open. It is very important and has potentially profound implications for economic growth, productivity and how economies are shaped going forward,” Bailey said.
“The challenges of AI are not out of control in the sense of sort of 2001: A Space Odyssey. It’s so complicated in many of its forms that understanding exactly what the black box delivers can be very hard. You’ve got to have controls and understanding about how the thing works.”
Sam Woods, chief executive of the Bank’s prudential regulation authority, said that regulators would take a “technology-agnostic” approach to possible regulation. He said there may be a role for specific financial rules around the use of AI that could complement broader governmental attempts to regulate the technology.
“We may need to elaborate on some things, such as when senior managers are in charge of a model what are the reasonable steps senior managers must take to ensure themselves that what comes out of the black box is actually reasonable.” Woods said.
He added the regulator had been given new powers to ensure that parts of the financial system did not become dependent on a single AI company.
The UK has sought to make itself a global leader in the development and regulation of AI, with Rishi Sunak telling a summit of industry professionals and global leaders at Bletchley Park last month that there would be “nothing more transformative to the futures of our children and grandchildren”.
Scepticism remains, however, with Goldman Sachs suggesting that AI could replace the equivalent of 300 million full-time jobs in the United States and Europe, and Elon Musk, the Tesla boss and the world’s richest man, describing it as “one of the biggest threats” to humanity.
A new survey out today highlights how AI and generative artificial intelligence, which is capable of generating text, images or other media, is increasingly shaping the labour market.
An analysis of UK job postings data for Indeed’s 2024 UK jobs and hiring trends report, shows that 24 per cent of jobs face the highest level of potential exposure, meaning that generative artificial intelligence can perform at least 80 per cent of skills required for the job at a good level.
Jack Kennedy, senior UK economist at the matching and hiring platform, said: “Generative AI is having an impact on the UK labour market. The data shows that while GenAI can learn to do some tasks reasonably well, it is unlikely to fully replace many jobs.
“Instead, as the technology continues to learn skills associated with certain jobs, it will augment or transform some more than others.”
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Bank of England set to examine risks posed by artificial intelligence
