One obvious place to start is assessing the potential fallout from AI-driven market shocks, the committee said.
LONDON: Britain’s financial regulators should start stress-testing the risks posed by artificial intelligence (AI) because their current wait-and-see approach leaves the public and economy in danger of “serious harm,” a group of lawmakers warn.
The Bank of England, the Financial Conduct Authority (FCA) and the Treasury are failing to keep up with the threat from AI, which is now used by more than three quarters of UK financial services firms, Parliament’s Treasury Select Committee (TSC) concluded in a new report.
One obvious place to start is assessing the potential fallout from AI-driven market shocks, it said.
Financial institutions are rapidly adopting AI for all kinds of services, from helping devise investment strategies to automating administrative functions and processing insurance claims.
The committee said there may be “considerable benefits to consumers” but warned reliance on AI and cloud providers is a new stability risk.
“Based on the evidence I’ve seen, I do not feel confident that our financial system is prepared for a major AI-related incident and that is worrying,” TSC chair Meg Hillier said.
“I want to see our public financial institutions take a more proactive approach to protecting us against that risk.”
The members of Parliament (MPs) called on the FCA, the consumer regulator, to publish guidance on the guardrails around AI in the financial sector by the end of the year, including identifying the individuals responsible.
Cloud providers like Amazon Web Services (AWS) and Google Cloud should also be designated critical industries to improve regulatory oversight, they added.
Both cloud providers told MPs during the inquiry that they expect to be brought into the regulators’ “critical third parties regime,” with Google revealing it is already prepared, but the Treasury has yet to act.
Underlining the threat, AWS was hit by a massive outage in October during the inquiry that knocked several companies, including Lloyds Banking Group, offline.
Industry specialists warned that AI trading amplifies herding and increases financial stability risks as well as heightening cyber security vulnerabilities. — Bloomberg
