The Bank of England is considering introducing an AI “kill switch” to stop trading bots from causing a meltdown in financial markets.
Sarah Breeden, the deputy governor, said officials were running simulations on what would happen if AI traders all tried to execute similar trades at the same time.
She told central bankers at an event in Sintra, Portugal, that the capabilities of AI “could amplify volatility” when financial markets come under stress.
As a result, the Bank has been researching how to combat so-called “herding behaviour” by AI tools, along with Germany’s Bundesbank and the Bank for International Settlements.
Ms Breeden told the conference that central banks were exploring “mitigants” such as “circuit breakers or kill switches that would limit or stop trading market-wide if faulty AI models cause market meltdown”.
Growing risks
Concerns about AI’s capabilities have increased in recent weeks after Anthropic, the developer of the Claude chatbot, unveiled a new system called Mythos, deemed too dangerous to release to the public thanks to its cyber capabilities.
UK banks have so far been unable to access the technology after the White House blocked global access to the AI over fears it could be misused by hackers.
Trading firms mostly use autonomous AI for lower-risk operational tasks, such as research, but Ms Breeden warned this could change quickly and have consequences for markets.
Growing numbers of trades are already driven by algorithms that can execute transactions so they take place almost instantly in response to market movements.
The Bank’s simulations are now examining the incorporation of “agentic” AI into trading desks, bots that can set goals, plan and take actions without constant human supervision.
Ms Breeden said: “As AI capabilities increase, we must keep asking whether existing, technology-agnostic regulatory frameworks remain sufficient.”
The capabilities of AI bots doubled roughly every seven months in 2019, but this timeframe shortened to around four months as of 2024, Ms Breeden said. “An already exponential increase in capability appears to be accelerating,” she added.
The Bank has previously investigated the impact of algorithmic trading on markets. In 2016, it looked at a flash crash in the pound, which it said was probably caused by a series of computer algorithms executing trades simultaneously on a usually quiet part of the day.
Circuit-breakers, designed to halt panic selling on major stock exchanges, have been brought into focus in recent weeks following the sharp sell-off in tech shares. South Korea’s benchmark Kospi index triggered its circuit-breaker twice last week during heightened volatility, having only used it 11 times since 2000.
Last month, a group of MPs pushed for an amendment to the Government’s cyber security and resilience bill that would require an AI “kill switch” to shut down data centres.
The amendment to the bill, in its second reading in the House of Lords, would have meant data centre operators would have to install infrastructure allowing them to be shut down instantly by ministers.
Donald Trump has also expressed support for the possibility of an AI kill switch.
Central banks have this week warned trading patterns are not the only risk posed by AI to financial markets.
The Bank for International Settlements, known as the bank for central banks, said on Sunday that “excessive” spending on new AI data centres and opaque transactions risked a financial meltdown similar to the global credit crunch nearly two decades ago.
It warned there was growing “peril” in financial markets from the complex web of financial ties between AI giants, shadow banks and data centre builders unravelling.