NZ central bank warns of impact of AI rise on financial stability

WELLINGTON, May 5 (Xinhua) -- The central bank of New Zealand warned on Monday that the rise of artificial intelligence (AI) in the financial sector presents both opportunities and risks to financial stability.

In its upcoming Financial Stability Report, the Reserve Bank of New Zealand (RBNZ) cautions that increasing reliance on AI could amplify vulnerabilities, with risks including system errors, data privacy breaches and market distortions.

The growing dependence on a few major third-party AI providers raises concerns about market concentration, increasing the potential impact of cyberattacks, the report said.

"There is still considerable uncertainty around how AI will shape the financial system," said Kerry Watt, RBNZ director of Financial Stability Assessment &Strategy.

It could strengthen resilience, but it may also introduce new or greater risks, Watt said.

The central bank highlights AI's potential to boost productivity, enhance risk assessment, improve modelling accuracy, and strengthen cyber defenses across financial institutions.

Regulated entities are expected to manage AI-related risks within existing frameworks, and regulations must evolve to keep pace with technological change, RBNZ said, adding it will continue monitoring AI developments and regulatory responses to ensure the financial system remains robust in the face of innovation.