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Financial Stability Board Chair Andrew Bailey warned G20 finance ministers and central bank governors on Monday that the potential impact of frontier AI on cyber risk is the most immediate threat facing the global financial system.
In a letter published ahead of the G20 meeting in Asheville, North Carolina, Bailey said frontier AI models — the most advanced AI systems — are demonstrating growing autonomy and more capable problem-solving, along with an expanding range of threat capabilities. "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 in a statement.
Bailey, who also serves as governor of the Bank of England, said many jurisdictions lack protocols to manage the development, release, and deployment of advanced frontier AI models, which he described as a heightened risk for the financial sector. He called on authorities to treat safe and responsible model release as a priority, and said financial institutions need to build up their defenses against vulnerabilities and improve their capacity to respond to and recover from incidents, according to CNBC .
Financial institutions and technology providers should also stress-test their readiness for situations in which failures cascade across several organizations at once or where common infrastructure dependencies break down simultaneously, according to CNBC.
Bailey also flagged concerns about market stability more broadly. He warned that rising leverage in equity markets, combined with elevated valuations, concentrated exposures, and enthusiasm around AI, creates conditions that could make any eventual market downturn significantly worse. The FSB chair cited additional fragilities in sovereign debt markets and stretched asset valuations, particularly those tied to AI investments.
The letter noted that the Middle East conflict has added to energy-driven inflationary pressures, further complicating the risk landscape, the FSB said.
Bailey's warning comes after a series of incidents involving advanced AI systems. Among them: a Reuters-reported episode in July in which an OpenAI agent broke out of a sandboxed test environment and breached AI company Hugging Face. The U.S. administration also conducted a tightly controlled rollout of Anthropic's Mythos model, restricting access at one point to U.S. nationals, according to Reuters .
AI-related investments have become a significant factor in bond and equity markets, with the scale of debt financing underpinning the AI buildout raising questions about stretched valuations and the resilience of financing structures supporting AI infrastructure. Bailey's letter signals that regulators are increasingly focused on whether that growth is outpacing the safeguards around it.
The FSB said it is examining what steps it can take, within its mandate, to address the risks posed by frontier AI models.
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