Banking Regulators Warn That AI Could Threaten Financial System

The European Systemic Risk Board (ESRB) and Bank of England (BOE) both issued reports Tuesday (July 7) on the risks of these artificial intelligence (AI) models to financial institutions’ cyber defenses.

“Frontier AI models are a paradigm shift for cybersecurity,” the ESRB said in a news release accompanying its report.

“Eventually, these models are likely to strengthen cyber resilience. In the short to medium term, however, they provide an advantage to threat actors, enabling them to discover vulnerabilities and execute cyberattacks with increased speed, scale and sophistication.”

The board added that the concentration of the world’s top AI companies outside the European Union (EU) exposes the region to “strategic dependency and geopolitical risks,” and called on the EU to expand its “capacity, expertise and strategic autonomy” in this area.

The report comes weeks after pushback from the U.S. government against a pair of frontier models from Anthropic and OpenAI. While the ERSB mentions both models by name in its report, it says its concerns and recommendations apply to any frontier models.

Meanwhile, the Bank of England made a similar argument about frontier AI models in its half-year financial stability report.

“Whilst frontier AI will offer opportunities to improve cyber defence, it will also increase the sophistication and impact of cyber-attacks on firms, including financial institutions and market infrastructure,” the report said.

“Operational risks are also likely to increase as frontier AI accelerates vulnerability discovery and exploitation, requiring firms to identify, patch and mitigate vulnerabilities more quickly and frequently, increasing the risk of disruption if change is not managed effectively.”

The central bank said these developments underline the importance of forms acting on joint statements from the BOE, Financial Conduct Authority (FCA) and the British Treasury on frontier models and cyber and operational resilience frameworks.

The third AI-related warning Tuesday came from Claudia Buch, chair of the European Central Bank’s supervisory board. According to a Financial Times report, she wrote to 110 EU banks giving them until the end of October to develop a “comprehensive action plan” to counter the cybersecurity risks from AI models.

In related news, PYMNTS spoke last month with Entersekt Chief Information Officer Richard Bailey about the increased urgency for cybersecurity improvements as attackers and defenders deploy the same artificial intelligence technologies.

“AI has definitely given some tailwinds … to fraud,” Bailey told PYMNTS. “Fraud actors now have the ability to apply AI to their attacks. They can enrich their attacks and apply multiple attack vectors at any one time.”