Moody’s Warned Banks About Their Reliance on AI Providers
The rating agency Moody’s stated that the active adoption of artificial intelligence could increase large banks’ dependence on a small group of technology companies and cloud service providers. According to the agency, this creates risks of large-scale disruptions in the event of problems with one of the providers, as well as a potential increase in prices for AI services, reports The Guardian.
Moody’s believes that integrating AI into the day-to-day operations of financial companies could, in the long run, reduce costs and increase revenue. At the same time, this will require significant investment, and some of the expected benefits may be offset by competition among market participants who are simultaneously investing in these technologies.
The agency also highlighted risks related to data privacy, cybersecurity, fraud, and a potential rapid outflow of deposits. Moody’s identifies the concentration of the market for providers of foundational AI models and cloud infrastructure as a separate threat: a failure at a major provider could quickly affect its customers across various sectors. As AI becomes more widely used, regulators may pay closer attention to operational resilience and the concentration of third-party providers in the AI technology stack.
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According to a report by the UK Treasury Committee released in January, more than 75% of companies in London’s financial sector are already using AI. Insurance companies and international banks are using the technology to automate administrative processes, process insurance claims, and assess customers’ creditworthiness.
Moody’s notes that banks and insurers can reduce their dependence by maintaining control over their own data, leveraging their experience in negotiating technology contracts, using open-source models, and forming partnerships. At the same time, the agency warned that AI could make it easier for depositors to switch to accounts with higher interest rates, potentially leading to significant amounts of deposits being transferred in a short period of time. The report also estimated a 20% probability that by 2030, AI will be capable of performing the work of a mid-level employee.
