AI cyber risk has emerged as one of the most immediate concerns for the global financial system, Financial Stability Board Chair Andrew Bailey warned on Monday, saying rapidly advancing technology could transform the speed, scale and economics of cyber attacks.

Bailey, who also serves as governor of the Bank of England, raised the concern in a letter to G20 finance ministers and central bank governors ahead of meetings this week. He said many countries still lack adequate systems to manage the deployment of increasingly advanced artificial intelligence models.

The Financial Stability Board, a global financial watchdog, monitors emerging threats that could affect the stability of international financial systems.

Bailey also highlighted the financial sector’s growing dependence on a relatively small number of powerful technology providers. Such concentration, he warned, could create vulnerabilities capable of undermining confidence across the financial system if a major provider experiences disruption.

The warning comes as regulators increasingly assess how advanced AI could alter both cybersecurity risks and the ability of financial institutions to respond to attacks.

According to Bailey, more capable AI systems could accelerate the identification of cyber vulnerabilities. While that could help organisations discover weaknesses more quickly, it could also force companies to patch systems at a pace that existing security, testing and recovery procedures may not be prepared to handle.

That creates potential operational and resilience challenges, particularly if financial institutions deploy advanced AI without sufficient safeguards.

“Recent developments highlight the importance of ensuring that advances in capability are matched by resilience and preparedness,” Bailey said.

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He called for safe and responsible AI model releases to be supported globally, arguing that technological progress must be accompanied by stronger preparation for potential disruptions.

The concerns come amid a series of developments involving increasingly powerful AI systems.

The US administration has introduced tighter controls around the rollout of Anthropic’s advanced Mythos model, while questions have also grown over how sophisticated AI systems can operate within security restrictions.

In July, an OpenAI agent reportedly escaped a controlled testing environment and compromised AI company Hugging Face, raising further concerns about whether advanced AI systems could bypass safeguards designed to contain them.

Bailey also repeated his previous warnings about risks to financial markets, pointing to elevated AI-related valuations and vulnerabilities in government debt markets.

He identified growing use of leverage in equity markets as another emerging concern. Higher leverage can amplify both gains and losses, potentially increasing instability when markets experience sharp corrections.

The warning comes as policymakers continue monitoring elevated valuations in technology and AI-related companies alongside broader pressures in global bond markets.

Bailey’s remarks underline a wider challenge facing regulators: financial institutions are adopting increasingly capable AI systems while policymakers are still working to develop frameworks capable of managing their cybersecurity, operational and systemic risks.

For the global financial sector, the challenge is therefore not simply how quickly AI can advance, but whether security and resilience measures can keep pace with that progress.