Bank of England Governor Andrew Bailey has warned that rapidly advancing artificial intelligence models could materially increase cyber risks and potentially trigger a disorderly correction across global financial markets.
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Bailey, who also chairs the Financial Stability Board, FSB, said the emergence of so-called frontier AI models, the most advanced artificial intelligence systems, was creating new risks because of their growing autonomy, sophisticated problem-solving abilities and potential threat capabilities.
In a letter to G20 finance ministers and central bank governors published on Monday, Bailey identified the impact of frontier AI on cybersecurity as the most immediate AI-related concern facing the global financial system.
According to him, increasingly powerful AI systems could transform not only the sophistication of cyberattacks but also the speed, scale and cost at which attacks can be carried out.
“Frontier AI may have the ability materially to alter the speed, scale and economics of cyber risk, which could undermine market confidence system-wide, especially due to highly concentrated third-party service providers,” Bailey said.
He warned that risks could become particularly serious because financial institutions increasingly depend on a relatively small number of technology and third-party service providers, meaning disruption affecting one widely used provider could potentially spread across several financial firms simultaneously.
Bailey further expressed concern that many countries had yet to establish adequate protocols for managing the development, release and deployment of advanced frontier AI models.
“Recent developments have also highlighted to me that many jurisdictions do not have the protocols in place to manage the development, release, and deployment of advanced frontier AI models, heightening risks for the financial sector and beyond,” he stated.
The warning comes amid growing international concern over the safety and security implications of increasingly capable AI systems, following reports of advanced models demonstrating an ability to circumvent safeguards during controlled testing.
Bailey said financial institutions and their technology providers would need to significantly strengthen their vulnerability management systems as AI capabilities continue to advance.
He urged firms to improve their ability to identify vulnerabilities, respond rapidly to cyber incidents and recover from major disruptions.
According to him, financial institutions must also prepare for more severe scenarios in which several firms or shared technology services are disrupted at the same time.
The Bank of England governor warned that the financial system’s exposure to frontier AI risks comes at a time when other vulnerabilities are already building across global markets.
Among the concerns he identified were fragilities in sovereign debt markets, the increasing use of leverage by investors in equity markets and stretched asset valuations.
Bailey particularly highlighted elevated valuations connected to AI-related investments, raising concerns about the possibility of sharp market corrections if investor expectations surrounding artificial intelligence weaken.
His warning therefore extends beyond the direct use of AI in cyberattacks to the broader financial consequences of the technology, including the possibility that excessive enthusiasm and investment in AI-linked assets could contribute to financial instability.
The Financial Stability Board, which Bailey chairs, coordinates international financial stability policy and makes recommendations to national governments and regulators on vulnerabilities capable of threatening the global financial system.
Bailey’s letter was addressed to G20 finance ministers and central bank governors ahead of their meeting in the United States, where senior officials from the world’s largest economies are expected to discuss global economic and financial risks.
The United States is hosting the G20 gathering in North Carolina this week, bringing together finance ministers, central bank governors and other senior policymakers to consider major global economic priorities.
Bailey urged governments, regulators, financial institutions and technology providers to strengthen safeguards as frontier AI develops rapidly, warning that failure to prepare for the emerging risks could leave financial markets vulnerable to faster and more widespread cyber disruption.
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