The Bank of England (BoE) has opted not to regulate AI specifically but to monitor financial firms' use of third-party AI providers.

However, the Bank of England (BoE) is unlikely to introduce specific regulations for AI, according to comments made by its deputy governor. Sam Woods

The BoE has published its latest Financial Stability Report, and while the report acknowledges the benefits of AI and ML in terms of operational efficiency, risk management and product development, it also highlights potential risks.

These include greater susceptibility to cyberattacks, amplifying herd behaviour and presenting systemic risks.

“We obviously have to go into AI with our eyes open,” said BoE governor Andrew Bailey. “It’s not out of control in the sense of 2001: A Space Odyssey. It’s actually that the thing is so complicated in many of its forms that understanding exactly what the black box delivers is very hard.”

Bailey referred to the rise of generative AI and the phenomenon of so-called ‘hallucinations’ that can be caused by the technology. “You can’t have that sort of thing happening in financial services,” said Bailey.

The BoE has ruled out the idea of regulations specific to AI, maintaining that its regulatory approach will remain technology-agnostic.

However, it has been granted new powers to oversee financial firms’ use of third parties, such as cloud providers, in order to ensure no institution is unduly dependent on a single vendor. And Woods said that AI providers may well be candidates for these new powers.

Meanwhile, the EU is busy debating its own AI Act, which is set to be introduced next year but currently faces a battle between states as to how generative AI technology should be regulated. In particular, France, Germany and Italy have emerged as advocates for self-regulation – a move that has been seen as an effort to protect their home-based AI companies against other states like the US, China and the UK, which may opt for a less onerous regulatory environment.

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