“We need to think about new tools and a different way of working with the [AI] market in a more collaborative way,” says Nikhil Rathi, CEO of the UK’s finance watchdog.
European regulators and central bankers have warned that rulemaking cannot keep pace with rapid advances in agentic artificial intelligence and have called for guardrails to protect the financial system.
Bank of England deputy governor Sarah Breeden is one of several central bankers who have said that agentic AI could amplify volatility during bouts of market stress.
Breeden questioned if guardrails are needed, “analogous to circuit breakers or kill switches that would limit or stop trading market-wide if faulty AI models cause market meltdown,” she said at the European Central Bank’s annual meeting in Sintra, Portugal, on Tuesday.
US companies are leading in AI investment and frontier model development, and Europe’s financial system gives it fewer capital channels into AI compared to the US equity markets. Regulating too cautiously could widen that gap further, as AI companies may seek out jurisdictions with lower compliance requirements.
European Central Bank President Christine Lagarde, in an interview with French outlet Les Echos on Thursday, warned that AI technology poses a “major risk.”
“For about a decade now, we have been talking about cybersecurity risks, hacking, data theft, and so on,” Lagarde said. “But with the acceleration and deepening of AI models, we are confronted with a much more serious risk, because it is happening very, very quickly, and because the means of defense — and the funding required for them — have yet to be found.”
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Meanwhile, Nikhil Rathi, CEO of the UK’s Financial Conduct Authority, told CNBC’s Squawk Box on Thursday that traditional regulation cycles don’t work in an era of fast-moving AI development.
“Technology moves incredibly fast, and we need to think differently about some of the innovations that we are seeing on AI,” Rathi said.
Central bankers, especially in Europe, have raised the same red flags about crypto, claiming that it could disrupt the traditional financial system.
The Bank for International Settlements warned on June 28 that AI “exuberance” could have major financial consequences.
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