As artificial intelligence continues to advance rapidly, its power to shape the global economy is becoming clear. Leaps in machine learning capabilities, with their potential for far-reaching impacts across multiple sectors, often evoke comparisons to the transformative power of the Industrial Revolution. AI’s effects on finance – a sector deeply intertwined with economic activity – will be profound.

A report by OMFIF’s Digital Monetary Institute finds that a critical yet underexamined aspect of this is the risks that lie in the interplay between AI and the financial system. While many scholars and policy-makers agree that AI could help broaden access to finance, make high-quality products more personalised and improve analytical models – AI also presents a spectrum of risks.

However, these risks have been under-studied and underexamined. The report reviews the risks that increased adoption of advanced AI present within or through the financial sector, and offers suggestions about future topics of inquiry.

Using existing scholarly research and literature, the report outlines AI’s ‘first-order’ risks, which include potential hazards arising from the deployment of AI within the financial system itself, and ‘second-order risks’, which may arise from AI adoption in the broader economy.

Regulatory frameworks that have evolved over decades to ensure financial stability and protect consumers may prove ineffective or even counterproductive in the face of swift AI-driven transformation. It is hoped that this report lays a valuable foundation for researchers and policy-makers working on this important topic.