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Arthur T Knackerbracket [soylentnews.org] writes:

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Arthur T Knackerbracket has processed the following story [theregister.com]:

UK financial regulators must conduct stress testing to ensure businesses are ready for AI-driven market shocks, MPs have warned.

The Bank of England, Financial Conduct Authority, and HM Treasury risk exposing consumers and the financial system to "potentially serious harm" by taking a wait-and-see approach, according to a House of Commons Treasury Committee report published today.

During its hearings, the committee found a troubling lack of accountability and understanding of the risks involved in spreading AI across the financial services sector.

David Geale, the FCA's Executive Director for Payments and Digital Finance, said individuals within financial services firms were "on the hook" for harm caused to consumers through AI. Yet trade association Innovate Finance testified that management in financial institutions struggled to assess AI risk. The "lack of explainability" of AI models directly conflicted with the regime's requirement for senior managers to demonstrate they understood and controlled risks, the committee argued.

The committee said there should be clear lines of accountability when AI systems produce harmful or unfair outcomes. "For instance, if an AI system unfairly denies credit to a customer in urgent need – such as for medical treatment – there must be clarity on who is responsible: the developers, the institution deploying the model, or the data providers."

The committee also slammed the government for failing to implement the Critical Third Parties regime, which it introduced in January last year to give the FCA and the Bank of England the power to investigate non-financial firms that provide critical services to the UK financial services sector, including AI and cloud providers.

"Over a year since the regime was established, it is not clear to us why HM Treasury has been so slow to use the new powers at its disposal. The Bank of England's Financial Policy Committee must monitor the regime's progress and, if necessary, use its power of recommendation to HM Treasury to ensure swift implementation," the report said.

Financial services is one of the UK's most important economic sectors. In 2023, it contributed £294 billion to the economy [theglobalcity.uk] [PDF], or around 13 percent of the gross value added of all economic sectors.

However, successive governments have adopted a light-touch approach to AI regulation for fear of discouraging investment.

Treasury Select Committee chair Dame Meg Hillier said: "Firms are understandably eager to try and gain an edge by embracing new technology, and that's particularly true in our financial services sector, which must compete on the global stage.

"Based on the evidence I've seen, I do not feel confident that our financial system is prepared if there was a major AI-related incident and that is worrying. I want to see our public financial institutions take a more proactive approach to protecting us against that risk."

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