U.K. Banks Cut AI Exposure As Fears of a Market Correction Mount

U.K. banks have begun cutting their exposure to artificial intelligence as fears of a sharp market correction grow, according to Katharine Braddick, the Bank of England’s top banking supervisor.

Braddick, who took over the Prudential Regulation Authority in July, said in an interview that lenders were reviewing how much AI risk they were willing to take and becoming more selective about which clients they would do business with.

“We’re all alarmed at the moment, aren’t we?” she told Bloomberg.

The Bank’s review found no evidence that lenders would amplify an AI shock, Braddick said, and the central bank has no current plans to use capital requirements to push banks to reduce their exposure.

The pullback comes amid a sell-off in AI-related shares following the U.S. midterm elections.

The rout has put AI developer Anthropic’s anticipated public offering at risk.

Keeping Banks Running During Cyberattacks

The Prudential Regulation Authority and the Financial Conduct Authority are due to publish guidance later this month on risks from frontier AI and quantum computing.

Braddick said it would set out how regulators expect banks to govern those risks.

The guidance follows alarm among regulators over the potential for AI systems to carry out cyberattacks.

Anthropic’s Mythos model had prompted watchdogs and governments to assess the threat earlier this year.

Braddick is also working on a proposal by Bank of England Governor Andrew Bailey that would require banks to maintain essential services through a cyberattack.

Regulators are weighing which lenders should have their own infrastructure and how smaller banks that cannot afford it could meet the requirement. They have yet to set a deadline.

Capital Reforms

The Bank’s Financial Policy Committee is due to discuss a package of capital reforms this week, following last year’s decision to lower the U.K.’s benchmark capital requirement by one percentage point to 13%.

The Bank is due to announce the outcome on Nov. 26.

Braddick said a recent request from the chancellor to speed up agreed changes and propose further measures had left her approach to capital policy unchanged.

She said she favored giving lenders a predictable framework after recent changes and expected the Prudential Regulation Authority to publish its first five-year strategy early next year.