Artificial intelligence is rapidly transforming the global financial system, but the International Monetary Fund (IMF) says regulators must act faster to prevent the technology from becoming a source of financial instability. The global lender has urged central banks and financial watchdogs to strengthen governance and oversight as AI becomes increasingly embedded in banking, lending, trading and financial supervision.
The warning came from the IMF’s Financial Counsellor and Director of the Monetary and Capital Markets Department, Tobias Adrian, who highlighted the growing influence of AI across the financial sector in a recent blog post. According to Adrian, AI is helping institutions assess risks more accurately, speed up lending decisions, automate market trading and support regulatory supervision. While these innovations have improved efficiency and expanded access to financial services, they also introduce new risks that require stronger regulatory attention.
Adrian explained that AI-powered systems are making financial markets faster and more efficient by improving liquidity, lowering transaction costs and enhancing price discovery. AI-driven lending has also opened new opportunities for consumers and small businesses by using alternative data to improve credit assessments while strengthening fraud detection. However, he warned that the same technology could amplify market shocks if many financial institutions rely on similar AI models that respond to identical market signals at the same time.
Drawing on IMF research, Adrian noted that some AI-managed investment funds rebalance their portfolios much faster than traditional funds, increasing the possibility of synchronized trading during periods of market stress. Instead of isolated programming mistakes triggering future crises, he cautioned that multiple AI systems could independently reach the same conclusions and execute similar investment strategies simultaneously, potentially intensifying market volatility and spreading financial shocks across institutions.
To reduce these emerging risks, the IMF is calling on policymakers to strengthen oversight of AI-powered trading and lending systems, improve transparency around AI models and investment strategies, and enhance cross-border cooperation on cybersecurity and operational resilience. Adrian also emphasized the need for more robust stress-testing frameworks and better data collection on AI adoption and financial market exposure, stressing that proactive regulation will be essential to ensuring AI supports financial innovation without undermining global stability.
source: punch
