IMF warns AI could amplify financial risks, calls for stronger oversight by central banks

As artificial intelligence rapidly transforms global finance, the International Monetary Fund (IMF) has cautioned that central banks and financial regulators must strengthen oversight to prevent AI-driven risks from triggering future financial instability.

In a blog released on Thursday, IMF Financial Counsellor and Director of the Monetary and Capital Markets Department Tobias Adrian said AI is no longer merely improving efficiency in financial markets but is becoming deeply embedded in trading, lending, market infrastructure and financial supervision.

While AI has the potential to improve liquidity, accelerate price discovery and enhance fraud detection, Adrian warned that widespread adoption could also amplify systemic risks during periods of market stress.

"Future flash crashes may arise less from coding errors and more from many AI systems reacting in parallel to the same information," he said, noting that AI-powered investment strategies could lead to synchronized trading and sharper market swings.

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The IMF said regulators need better visibility into how financial institutions deploy AI, including mapping model dependencies, monitoring correlated trading strategies and incorporating AI-related risks into stress-testing exercises.

The Fund also flagged growing concentration risks as financial institutions increasingly rely on a handful of cloud computing, data and AI model providers. A disruption at one critical provider, whether due to a cyberattack, technical failure or geopolitical event could simultaneously affect multiple financial institutions, posing broader systemic risks.

Beyond financial markets, Adrian highlighted the growing use of AI in supervisory technology, or "SupTech", with central banks including the US Federal Reserve, European Central Bank and Bank of Canada already using machine learning and natural language processing to improve market surveillance and identify emerging risks.

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However, the IMF stressed that AI should augment, not replace human supervisory judgment, warning against over-reliance on automated systems.

The blog also identified AI-enabled cyberattacks as an emerging macro-financial risk, with increasingly sophisticated phishing attacks, fraud and cyber threats reducing the time available for financial institutions to detect and respond to incidents.

The IMF said policymakers must strengthen governance frameworks, improve international cooperation, enhance cyber resilience and establish robust safeguards to ensure AI supports, rather than undermines, global financial stability.

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