New Zealand central bank sees AI adoption posing risk to financial stability

[WELLINGTON] The rapid acceleration of artificial intelligence adoption in financial services presents a risk to financial stability, the Reserve Bank of New Zealand said in a report on Monday.

“Errors in AI systems, data privacy concerns and market distortions could amplify existing risks,” the report said.

“The growing reliance on a small number of third-party AI providers may also contribute to market concentration, creating new channels for contagion and increasing the potential impact of cyber-attacks.”

However, it added that AI tools and models were also providing benefits, including improved productivity, greater modelling accuracy, enhanced risk assessment capabilities, and strengthened cyber resilience.

The report was released ahead of the twice-annual Financial Stability Report, due on Wednesday.

Kerry Watt, director of financial stability assessment and strategy at the central bank, added in a statement that there is considerable uncertainty around how AI will shape the financial system.

“We will continue to closely monitor developments in AI technology, adoption trends, and the evolving regulatory landscape, to ensure that the financial system remains well-positioned to manage emerging risks,” Watt said. REUTERS