Bailey Warns of Frontier AI Risks to Global Finance, Market Stability

Bank of England Governor Andrew Bailey has issued a warning about the risks of frontier artificial intelligence (AI) to global finance. In a letter sent as chair of the Financial Stability Board, he highlighted concerns about AI's growing autonomy and 'threat capabilities', which could lead to cross-border cyber disruption, disorderly corrections in stretched valuations, and market stress if autonomous trading agents run unchecked.

According to Bailey, frontier AI models are showing increasingly sophisticated autonomy and problem-solving abilities, as well as threat capabilities. Many countries still lack protocols for managing how those models are developed, released, and deployed, which raises risks 'for the financial sector and beyond.'

Bailey's most immediate concern is cyber risk, which he believes could be rewritten by AI models that can find weaknesses faster than banks can patch them. He warns that disruption can spread across jurisdictions, and no country can seal itself off from these threats.

The letter also highlights the problem of a valuation bubble in AI-linked stocks. Bailey modelled what happens if AI-linked equity prices correct because productivity and profits disappoint, resulting in a hypothetical shock that cut UK GDP by as much as 2.2 per cent.

A third strand of warning is about autonomous trading agents used to trade assets or process retail payments, which could threaten stability and cause 'market meltdown' if faulty models run away. Regulators are considering circuit breakers or 'kill switches' that could halt market-wide trading in such scenarios.