April 16 (Reuters) - The Bank of England is testing the risks to the financial system caused by AI by conducting scenario analysis and simulations, the central bank said in a letter published by
Bank of England Conducts AI Scenario Analysis to Address Financial System Risks
Bank of England's Approach to AI Risks in the Financial Sector
Scenario Analysis and Simulations
April 16 (Reuters) - The Bank of England is testing the risks to the financial system caused by AI by conducting scenario analysis and simulations, the central bank said in a letter published by lawmakers on Thursday.
Response to Treasury Committee's Assessment
The BoE said it disagreed with an assessment by parliament's Treasury Committee that it was taking a "wait-and-see" approach to the risks presented by AI, and that it was analysing how AI investment and adoption were changing the financial system.
International Collaboration and Market Impact
Working with Global Counterparts
It is also working with international counterparts to understand how AI agents might affect trading in financial markets, BoE Deputy Governor for Financial Stability Sarah Breeden said in a letter to the Treasury Committee.
Focus on Market "Herding" Behaviour
Testing will focus on "herding" behaviour that could amplify selloffs during periods of market stress, Breeden said.
Emerging AI Risks and Cybersecurity Concerns
Anthropic's Mythos Product and Cyber Vulnerabilities
AI risks in the financial system came into sharper focus last week with the launch of Anthropic's Mythos product. Experts say its powerful coding ability could offer new ways to find cybersecurity vulnerabilities and exploit them.
Governor's Warning on Cyber Risk
BoE Governor Andrew Bailey said Anthropic may have "found a way to crack the whole cyber risk world open".
Regulatory and Governmental Responses
Critical Third Parties (CTP) Regime
The Treasury Committee criticised Britain's finance ministry for failing to commit to bringing major AI and cloud companies into the Critical Third Parties (CTP) Regime - which regulates key financial system infrastructure suppliers - before the end of 2026.
Committee Chair's Concerns
"I am pleased to see the Bank of England is grasping the nettle to some extent but I remain perplexed at the apparent inertia shown by the Treasury," Treasury Committee Chair Meg Hillier, a member of the governing Labour Party, said.
Unused Regulatory Powers
"The powers offered by the Critical Third Parties Regime are sitting unused while we remain vulnerable. I simply cannot understand why this is taking so long. We will continue to monitor this situation closely."
Government's Position on CTP Designation
Treasury minister Lucy Rigby told the committee that the government expects to make initial CTP designation decisions this year, but would not reveal which firms are under consideration in order to protect the integrity of the process.
Outlook for AI Adoption in the Financial Sector
The BoE's Financial Policy Committee on April 1 said firms have yet to deploy advanced AI such as agentic tools in ways that pose systemic risk, but warned that those risks could rise rapidly as the financial sector steps up adoption.
(Reporting by Andy Bruce; Editing by Andrew Heavens)
