The European Central Bank (ECB) voiced apprehensions about the centralization of artificial intelligence services within the EU’s financial systems. The bank’s caution underscores global concerns regarding the dearth of AI regulation and the potential damage the tech could inflict on financial institutions.
In an article accompanying its latest Financial Stability Review, the ECB noted AI concentration could lead to a herd mentality among financial institutions. It also warned that if institutions use AI for asset allocation but only have limited AI tools, the supply and demand for financial assets could be “distorted systematically,” introducing substantial risk into financial markets.
AI has well-documented flaws, like the bias models acquire when trained on incorrect or incomplete data. Also, AI models often don’t have proper safeguards to protect personal data and stop data leaks. These shortcomings could pose significant risks for financial institutions, although many emerging technologies encounter similar deficiencies.
“The most pressing concern the ECB raised is market concentration,” said Christopher Miller, Lead Analyst, Emerging Payments at Javelin Strategy & Research. “The other issues it mentioned would apply to most automation technologies. While also true of AI, the concerns characterize almost any technology in a vendor-provided, network-connected, and data-centric digital world.”
A Concerted Effort
The ECB’s latest guidance is part of a concerted effort to regulate artificial intelligence technology in the region. The EU recently introduced the world’s first law to govern AI. This legislation aims to ensure transparency in AI systems and their compliance with privacy and copyright laws. It also addresses increasing concerns that AI’s potency could lead to more powerful cyberattacks or could be used to manipulate financial markets.
The ECB’s concerns have resonated with regulators worldwide. American lawmakers have questioned the high concentration of AI tools with big tech companies like Microsoft, Google, and Meta. Given the EU’s first-mover role in AI regulation, global leaders will be watching the ECB’s next steps.
“The key point will be the conclusions the ECB draws as the market develops,” Miller said. “The frameworks they produce will likely influence global norms for how AI can be used to develop and deliver financial products.”