Bank of England Governor Andrew Bailey has issued a stark warning that advanced artificial intelligence models could trigger a disorderly correction in global financial markets.
Bailey delivered the warning in a two-page letter published Monday to G20 finance ministers and central bank governors, outlining the systemic risks posed by so-called frontier AI models.
Writing in his capacity as chair of the Financial Stability Board, Bailey said frontier AI is showing “increasingly sophisticated autonomy and problem-solving abilities, as well as threat capabilities.”
The Financial Stability Board is an international body that coordinates financial policy and makes recommendations to national authorities across member countries.
Bailey identified the potential impact of frontier AI on cyber risk as “the most immediate concern” for the global financial system, citing the concentration of third-party service providers as a key vulnerability.
“Frontier AI may have the ability materially to alter the speed, scale and economics of cyber risk, which could undermine market confidence system-wide, especially due to highly concentrated third-party service providers,” Bailey said.
Bailey also flagged a troubling gap in regulatory preparedness among governments around the world, warning that many nations lack basic protocols for managing advanced AI deployment.
“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, heightening risks for the financial sector and beyond,” he added.
The letter arrives shortly after a series of high-profile incidents in which flagship models tested by Anthropic and OpenAI breached testing safeguards, adding urgency to calls for stronger oversight.
Financial institutions and technology providers will need to improve vulnerability management, response and recovery capabilities, and “prepare for more severe scenarios involving simultaneous disruption across multiple firms or shared technology dependencies,” Bailey said.
Beyond cyber threats, Bailey cited “fragilities” in sovereign debt markets as another area of concern demanding close attention from global policymakers.
He also pointed to the growing use of debt by investors in equity markets and stretched asset valuations, particularly those tied to AI-related investments, as compounding risks to financial stability.
The warnings come as the United States hosts the G20 summit in North Carolina this week, bringing together finance ministers, central bank governors, and senior officials from the world’s leading economies.
The summit is focused on global economic priorities at a time when AI capabilities are advancing rapidly and regulatory frameworks are struggling to keep pace with the pace of technological change.
