European Central Bank advocates monitoring and regulation of AI in finance

The European Central Bank (ECB) has issued a call for increased vigilance and potential regulation regarding the use of AI (AI) in the financial sector. While acknowledging the potential benefits of AI, the ECB emphasises the need to mitigate risks to consumers and ensure market stability. 

The ECB acknowledges that AI, particularly generative AI, offers several advantages for banks and financial institutions. These include superior information processing capabilities, improved customer service efficiency, and enhanced cybersecurity measures. 

However, the ECB highlights several risks associated with the adoption of AI in finance. These risks include herding behaviour, over-reliance on a limited number of AI providers, and increased susceptibility to sophisticated cyberattacks. 

Given the potential risks, the ECB advocates for close monitoring of AI implementation in the financial system. It suggests that regulatory initiatives may be necessary to address any market failures that emerge and cannot be adequately managed within the existing regulatory framework.

The use of AI in the EU is regulated by the AI Act, which is the world’s first comprehensive AI law.  The regulation imposes transparency obligations and compliance requirements with EU copyright laws on general-purpose and high-risk AI systems. These regulations aim to ensure accountability and mitigate potential harms associated with AI technologies.

The ECB notes that the adoption of AI systems by European financial companies is still in its early stages. Market contacts suggest that some hesitation exists among the Euro area financial institutions, partly due to perceived risks and potential reputational concerns.