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Home » The spread of AI in the financial system is not without danger
AI in Finance

The spread of AI in the financial system is not without danger

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Mumbai: India’s banking regulator on Monday flagged significant emerging risks related to the spread and adoption of artificial intelligence (AI) in the financial sector.As part of its latest edition of the Financial Stability Report (FSR), the Reserve Bank of India (RBI) also highlighted that generative AI could increase cyber risks, potentially helping fraudsters launch sophisticated phishing attacks at using deepfakes.

“The evolution and adoption of AI poses several risks to financial stability,” the regulator noted. “Interconnectivity could be enhanced by over-reliance on shared technologies, service providers and infrastructure.”

The regulator also said the widespread availability of AI services such as ChatGPT has led to growing concern that these services are being used for cyberattacks.

According to the International Monetary Fund (IMF), increased adoption of AI in capital markets may create additional risks related to increased market speed and volatility during times of stress, particularly when trading strategies using AI become highly correlated. According to the Fund, if transactions are leveraged, any shock could amplify market tensions through fire sales and feedback loops.


Another concern flagged by the regulator was the risk of more activities migrating to non-bank financial companies, which could increase systemic opacity. The RBI also expressed concern over the high risk of market concentration, both within the financial sector and critical third parties. “If technology penetration and market and supplier concentration are high, the transition of risk from individual firms to the financial system could be non-linear and portend systemic risk,” he said.

The regulator called on standard-setters, regulators and supervisors to take a balanced approach to reap the benefits of AI while protecting the financial system. Regulators must update their skills and tools and proactively adapt their frameworks to identify and mitigate emerging risks related to this rapidly evolving technology, the RBI said.

Last week, Mint Street announced the creation of an eight-member group tasked with developing a framework for the responsible and ethical enablement of artificial intelligence. The mandate of the committee will be to study the current level of adoption of AI in financial services and review regulatory and supervisory approaches to AI with a focus on the financial sector globally .

The committee will also recommend a framework including governance aspects for responsible and ethical adoption of AI models for the financial sector.

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The evolution of AI-driven financial content creation and its influence on investment research.

July 22, 2025

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July 21, 2025

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