Bank of England governor Andrew Bailey, who chairs the Financial Stability Board, has warned G20 finance ministers that frontier AI models are raising the risk of a disorderly market correction. His letter calls for more countries to control the release of advanced AI systems and flags AI-driven cyberattacks as the most immediate threat to the financial system.
Andrew Bailey, governor of the Bank of England and chair of the Financial Stability Board, told G20 finance ministers and central bank governors that AI-driven cyber risk is adding to existing vulnerabilities in the financial system and increasing the danger of a market meltdown. He sent the letter on August 28, and it was published on August 31, ahead of G20 meetings in Asheville, North Carolina.
Cyberattacks are the most immediate risk
Bailey urged financial firms and technology groups to prepare for "more severe scenarios involving simultaneous disruption across multiple firms or shared technology dependencies." The FSB's July 2026 Financial Stability Report had already flagged rising cyber risks from AI advances, and Bailey's letter builds on those findings. He called for financial groups to develop "bare metal" backup systems, kept fully disconnected from their main networks, so they can restore operations after a major attack.
However, Bailey said the danger extends beyond a single point of failure. He warned that heavy reliance on a small number of technology providers means a disruption at any one of them could shake confidence across the wider market.
Existing fragilities add to the danger
Bailey said AI cyber risks are compounding vulnerabilities already present in the system, including energy-driven inflationary pressures, rising interest rates, increased investor leverage and stretched equity valuations. He pointed to fragilities in sovereign debt markets and signs of trouble in private credit markets as further concerns, alongside equity valuations he said were stretched by optimism about AI's potential.
He also warned that growing use of leverage by investors in equity markets makes a crisis more likely, noting that rising leverage has historically been a feature of a maturing financial cycle.
Countries diverge on AI oversight
Bailey called on more jurisdictions to take "appropriate steps" to control the release of new frontier AI models, appearing to press the United States to reconsider its lighter-touch stance. President Trump recently signed an executive order that stopped short of giving the government power to block a model's release, setting up a voluntary framework for agencies to inspect frontier models instead.
Earlier this year the White House had imposed export restrictions on Anthropic's frontier models over cyber security concerns, before lifting them in July after the company agreed to additional safeguards. Chinese President Xi Jinping is due to meet Trump in Washington on September 24, when the two are expected to discuss cooperation on AI regulation.
The FSB is now examining how financial firms can safely deploy AI models while improving their resilience to cyber attacks.
Sources: Financial Times, Crypto Briefing
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