On the use of artificial intelligence in financial regulations and the impact on financial stability

Artificial intelligence (AI) can undermine financial stability because of malicious use, misaligned AI engines and since financial crises are infrequent and unique, frustrating machine learning. Even if the authorities prefer a conservative approach to AI adoption, it will likely become widely used by stealth, taking over increasingly high-level functions, driven by significant cost efficiencies and its superior performance on specific tasks. We propose six criteria against which to judge the suitability of AI use by the private sector for financial regulation and crisis resolution and identify the primary channels through which AI can destabilise the system.