30s Summary

Reserve Bank of India (RBI) Governor Shaktikanta Das has warned about the potential dangers of AI and machine learning in finance, including cyberattacks and data leaks. Highlighting the risk of reliance on just a few large tech companies, Das’s concerns echo those of other global financial bodies. The European Central Bank (ECB) has also highlighted risks such as market concentration, and the Central Bank of Canada has identified potential issues of operational risks spreading through the financial system. Such bodies are urging collaboration to mitigate these risks.

Full Article

The Reserve Bank of India (RBI) is worried about how artificial intelligence (AI) could shake up financial stability. It has joined other big monetary organisations in expressing its concerns. Speaking at an event on 14th October, RBI Governor Shaktikanta Das highlighted the possible risks associated with the use of AI and machine learning in financial services, according to a Reuters report.

Das mentioned that there’s a risk in depending too much on a few big tech providers. If their AI systems fail or face disruptions, the effect could be much wider, causing risks across the entire industry. While AI can help enhance customer service and cut costs, Das warned of new dangers, such as an increase in cyberattacks, data leaks and the trouble of checking up on AI-driven algorithms that aren’t transparent.

Das’s worries reflect those of other world financial bodies. In a July report, the European Central Bank (ECB) shared its own concerns regarding the effects of AI on financial stability. The ECB said that while AI has some benefits, if too much of the financial sector starts relying on a few AI suppliers, it could increase “operational risk, market concentration and too-big-to-fail externalities”.

The ECB also cautioned that if AI becomes more widely adopted, it could lead to herd mentality, deception, market manipulation and conflicts of interest. It could sway the market, lead to price manipulations and contribute to increased prices. This could be made worse by the increased demand for energy due to the high computational power needs of AI.

On 20th September, the Central Bank of Canada also expressed its concern about AI and financial stability. It underlined that the adoption of AI could prompt financial instability issues. Banks and financial institutions investing in AI to enhance customer service, improve compliance and risk management, and better assess credit risk, could lead to operational risks becoming concentrated and spreading through the entire financial system.

As AI becomes more commonplace in the financial sector, central banks and financial regulators worldwide are encouraging financial institutions, regulators and tech developers to work together to lessen these risks and ensure the long-term stability of the global financial system.

Source: Cointelegraph