On 21 May 2024, the Bank of England (BoE) published a speech by an external member of the Financial Policy Committee (FPC), Randall Kroszner. The speech is entitled Balancing the productivity opportunities of financial technology and AI against the potential risks.

In his speech Mr Kroszner discusses the importance of innovation and the potentially fundamentally disruptive impact of artificial intelligence (AI). He then distinguishes between the regulatory challenges for dealing with more traditional incremental innovation versus fundamentally disruptive innovation.

Mr Kroszner also notes that in the financial services sector there is already widespread adoption of financial technology. He refers to the 2022 Machine Learning (ML) survey conducted by the BoE and Financial Conduct Authority which showed that 72% of financial services respondents reported using or developing ML applications. Firms are predominantly developing or using ML for customer engagement (28%), risk management (23), and support functions like human resources and legal departments (18%). Industry engagement suggests that firms, particularly large traditional financial institutions, are typically using ML to improve their overall efficiency and productivity.

Mr Kroszner also touches on misalignment and operational resilience. Misalignment is a concern that as soon as AI systems can act and plan in accordance with some specific goals they may, no matter how benign they are initially, begin to become misaligned with humanity’s needs and values in the pursuit of their key objective. While misalignment is not always inevitable, it is clearly something the FPC, as a committee inherently focused on risks, should consider. Mr Kroszner adds that one-way policymakers and regulators can lay the groundwork now for future challenges is through operational resilience. Operational resilience is becoming more important to financial stability as AI and fintech play a greater role in the provision of financial services.