UK banking regulator flags AI cyber risk as top threat for lenders

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Dan Blystone

12 hours ago

UK banking regulator flags AI cyber risk as top threat for lenders — AI top cyber threat for banks

Rising concern over cyber resilience is moving to the centre of UK banking supervision as more powerful AI tools spread across the sector. The Prudential Regulation Authority says the latest models could expose hidden weaknesses in lenders' IT systems and increase the risk of misuse by hostile actors.

Highlights

Sam Woods of the PRA warns that AI-related cyber risk, exacerbated by Anthropic's wider Mythos deployment, is now the top threat for UK banks.
Woods opposes deep cuts to UK bank capital and leverage requirements, cautioning against weakening post-crisis safeguards despite ongoing political pressure and reform debates.
Standard Chartered plans 8,000 job cuts as UK banks invest in AI for operational efficiency, while the PRA cuts 150 staff to fund technology upgrades.

Regulator warns on fast-moving AI vulnerabilities

As reported by the Financial Times, Sam Woods, outgoing chief executive of the Bank of England's Prudential Regulation Authority, says AI-related cyber risk is now the most unsettled area facing banks and could lead to a significant problem. He says geopolitical tensions are worsening the threat environment, with active conflicts and hostile actors increasing pressure on lenders' digital defences.

Woods' concern has intensified with the arrival of a new generation of AI models, including Anthropic's Claude Mythos Preview. Anthropic launches Mythos in April with limited access for about 50 largely U.S. companies, citing the model's ability to detect previously hidden IT vulnerabilities and its potential use in hacking.

This week, Anthropic says it will distribute Mythos more widely to 150 organisations across 15 countries, and Woods says some UK banks are expected to be included. He says banks need a significant increase in both the volume and speed of software patching, better categorisation of IT systems to identify higher-risk open-source code, and a reordering of technology programmes to make room for those changes.

Woods also says it is not plausible for the PRA to regulate banks' use of AI while the technology is moving so quickly. He adds that the regulator would start to worry when banks begin using AI to make crucial decisions on capital and risk-taking, rather than for customer service automation or tackling financial crime.

Capital rules and reform pressures remain in focus

The interview also highlights broader pressure on the UK regulatory framework as memories of the 2008 banking crisis fade and post-crisis rules come under political scrutiny. Woods says it is natural to review whether reforms are working as intended, but warns it would be a historic error to remove a large amount of capital from the UK banking system.

The Bank of England plans to lower its target level of capital for banks, and Woods says there is scope for some small adjustments, including on the leverage ratio. But he draws a line against deeper weakening of safeguards and cautions against going further after the Treasury's recent plan to ease ringfencing rules, which will allow up to 10 per cent of retail deposits to be used in previously restricted areas such as derivatives.

Banks are investing heavily in AI as they seek efficiency gains and lower costs across operations. Standard Chartered chief executive Bill Winters has faced criticism after saying AI will replace lower-value human capital as the bank prepares to cut 8,000 jobs, while the PRA is cutting about 150 staff through voluntary redundancies to free up funding for technology including AI.

On the UK's relationship with the EU, Woods says closer co-operation offers little benefit for financial services unless the sector regains passporting rights to trade freely across the bloc. He also says returning to full alignment with EU rules, or becoming a rule-taker, would be a bad idea from a financial stability perspective.

Our earlier coverage on the UK government’s push for companies to share aggregated data on AI’s impact on jobs and skills explained how officials want clearer evidence on changes to roles, productivity and working conditions ahead of an AI summit in London. The article also highlighted growing labour-market concerns as large employers link planned job cuts to AI-driven efficiency, even as ministers argue the technology can create new higher-paid roles.

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