Fintech & Ecommerce

Bank of England Says About AI Risks to Finances

The Bank of England has stated the risk that the wider spread of artificial intelligence could provoke a threat to the financial system.

Bank of England Says About AI Risks to Finances

The British central bank announced its intention to explore ways to prevent the implementation of negative scenarios in the specified sphere next year. The financial regulator also stated that the mentioned threat would be systemic.

At the same time, the Bank of England’s position on the prospects for the use of artificial intelligence is not unambiguously negative and does not consist only of pessimistic assessments. The financial regulator recognizes that applying AI and machine learning can contribute to the emergence of beneficial services in the British banking sector and related industries. At the same time, the management of this organization notes that an effective monitoring system is needed for companies specializing in the development of artificial intelligence configurations and various products based on advanced technology, and tools to control potential hazards.

The report of the Bank of England’s Financial Policy Committee, released at the end of November, focuses on the need to study the impact of AI and machine learning, including large language models. In this case, it implies the degree of influence of advanced technology on the stability of the financial system of the United Kingdom.

The Bank of England said that currently, companies operating in the sphere of financial services are likely to explore the prospects of using large language models with a relatively low level of risk. In this case, the ability of a new generation technology to cope with solving information extraction tasks is evaluated, but it is not considered as a potential scenario for its application automation of business solutions. There is a high probability that the perception of artificial intelligence and its capabilities will change as AI develops and the use of cognitive digital systems scales up.

Currently, many major players in the financial sector, including JPMorgan Chase & Co. and NatWest Group Plc, are introducing machine intelligence into their business structure. Advanced technology is used to serve customers and detect fraud cases. Also, many representatives of the financial sector perceive artificial intelligence as a tool to increase productivity and as a way to reduce costs.

The Bank of England’s position on AI was outlined in a special report. This report dealt not only with advanced technology but also with financial stability in the United Kingdom. The Bank of England warns that consumers and businesses have yet to feel the full effect of the interest rate hike. The organization states that some risks have not yet materialized, noting that their implementation is a matter of the near future. The Bank of England also argues that these risks may increase due to vulnerabilities in the market financial system.

The British central bank report also pays special attention to the fact that the net interest margin of the largest creditors of the United Kingdom has reached its peak. At the same time, it is noted that the profitability of these financial institutions will remain stable.

The Bank of England has maintained its countercyclical capital reserve at 2%. The organization’s report indicates that the overall risk situation remains difficult, as long-term interest rates in the United States and the United Kingdom are close to the levels that were observed before 2008.

Data from the Bank of England showed that British households are in good shape to cope with the effects of a spike in interest rates. The financial regulator notes that in this case, the state of affairs has improved compared to the situation in July this year.

The Bank of England predicts that about 440,000 British households will face debt levels that are difficult to service. A previous forecast estimated that 650,000 households would suffer this fate.

As we have reported earlier, Bank of England Official Says Technology Increases Risk of Bankruptcy.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.