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The Financial Stability Board (FSB) has released a report outlining the implications of artificial intelligence (AI) adoption within the global financial sector. The report highlights both the transformative potential of AI technologies and the risks they pose to financial stability.

According to the FSB, financial institutions (FIs) are increasingly utilizing AI tools for tasks such as fraud detection, customer service, regulatory compliance, and market analysis. However, the rapid adoption of generative AI (GenAI) and large language models (LLMs) has introduced new challenges. 

The FSB emphasized that these developments could amplify vulnerabilities in the financial system, including risks tied to data quality, model governance, and cyber threats.

The report points out that the financial sector's reliance on third-party providers for cloud services, pre-trained AI models, and hardware accelerators has created potential operational vulnerabilities. 

"Highly concentrated service provider markets exist across important aspects of the AI supply chain, including in hardware, infrastructure, and data aggregation. Service provider concentration vulnerabilities increase when many FIs rely on a limited set of providers for specific services or when FIs rely on the same service provider for multiple services," the FSB stated.

Additionally, the widespread use of similar AI models across financial markets raises concerns about increased market correlations, which could exacerbate stress during liquidity crises. The potential for AI-driven disinformation, cyberattacks, and financial fraud was also flagged as a significant risk.

Despite these challenges, the FSB noted the benefits of AI integration, such as enhanced operational efficiency and more tailored financial services. However, the organization stressed the need for comprehensive oversight and regulatory frameworks to manage these risks effectively.

The FSB recommended that financial authorities collaborate internationally to address gaps in data collection and AI monitoring. "The FSB, along with the SSBs and national authorities, could consider the implications of sector-specific regulatory and supervisory frameworks on the level-playing field across sectors, as well as between established firms and new entrants such as fintech firms," the report concluded.