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The rapid development of frontier artificial intelligence models could create cybersecurity risks capable of undermining global financial stability, Bank of England Governor Andrew Bailey has warned.
Bailey, who also chairs the Financial Stability Board (FSB), raised the concern in a letter to G20 finance ministers and central bank governors, calling for stronger safeguards around the development, release and deployment of advanced AI models.
He warned that many jurisdictions do not yet have adequate protocols for managing frontier AI, leaving the financial sector exposed to emerging risks that could spread across borders.
“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,” Bailey said, noting that the gaps could heighten risks to the financial sector and the wider economy.
Frontier AI and cybersecurity risks
Bailey’s intervention comes as financial institutions increasingly adopt AI for areas such as fraud detection, risk assessment, cybersecurity, customer service and compliance automation.
At the same time, increasingly sophisticated AI systems could also be used by malicious actors to accelerate cyberattacks, exploit vulnerabilities and disrupt critical financial infrastructure.
According to Bailey, the implications extend beyond individual institutions because financial markets rely heavily on interconnected technology systems and a relatively small number of critical third-party providers.
He warned that frontier AI could significantly change the “speed, scale and economics” of cyber risk, potentially undermining confidence across financial markets.
The concentration of critical technology services among major third-party providers could amplify the impact of an attack or technical failure, particularly where multiple financial institutions rely on the same infrastructure.
Regulators urged to strengthen oversight
Bailey called for the safe and responsible release and deployment of frontier AI models to become a priority for governments and regulators.
He stressed that AI-related risks cannot be addressed solely within national boundaries because technology providers, financial institutions and digital infrastructure operate across jurisdictions.
The FSB chair urged financial institutions, market infrastructures and technology companies to strengthen vulnerability management, incident response and recovery capabilities.
He also called on organisations to prepare for more severe scenarios involving simultaneous disruption across several institutions or failures affecting shared technology dependencies.
The warning places greater emphasis on operational resilience alongside traditional cybersecurity controls. Financial institutions, according to Bailey, should be capable of restoring critical systems and data following major cyber incidents, including from “bare metal” environments where necessary.
Third-party technology dependencies
The growing reliance on cloud computing, technology platforms and other external service providers has become an important consideration for financial-sector regulators.
A disruption at a major technology provider could affect several banks, payment companies or market infrastructures simultaneously, creating risks that individual institutions may be unable to contain on their own.
Bailey therefore highlighted the need to strengthen resilience among critical third-party technology providers and ensure that financial institutions understand the dependencies within their technology supply chains.
The concerns also reinforce the importance of regulatory monitoring and risk assessment as financial institutions expand their use of AI and other emerging technologies.
Global approach needed
Bailey’s call reflects growing international attention to the potential systemic implications of advanced AI.
While AI can improve productivity, financial crime prevention, cybersecurity and regulatory compliance, its rapid development is also creating new challenges around governance, data protection, operational resilience and cyber risk.
For regulators, the challenge is increasingly to ensure that innovation does not outpace the frameworks designed to manage its risks.
Bailey’s intervention suggests that future financial stability assessments may need to look beyond the resilience of individual banks and financial institutions to consider the broader digital ecosystem supporting them.
As frontier AI capabilities continue to evolve, regulators and industry participants will face increasing pressure to establish stronger safeguards, improve recovery capabilities and ensure that critical financial services can remain operational even when technology systems or third-party providers come under attack.
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