Moody’s Warns Banks Could Become Too Dependent on Major AI Providers
The ratings agency says rapid AI adoption could improve efficiency across finance while creating new risks around outages, cyber security and reliance on a small number of technolo
By The Guardian
Banks and insurers risk becoming increasingly dependent on a small number of major technology companies as artificial intelligence becomes embedded across financial services, Moody’s has warned.
The credit ratings agency said AI has the potential to reduce operating costs and generate additional revenue across banking, insurance and investment markets, but achieving those benefits will require substantial investment.
It also warned that competition between financial firms pursuing similar AI strategies could eventually reduce some of the commercial advantage gained from the technology.
One of the biggest concerns identified by Moody’s is the concentration of AI infrastructure among a relatively small number of foundation-model and cloud computing providers.
If several major banks depend on the same technology supplier, an outage or technical failure at that provider could affect multiple financial institutions at the same time.
Moody’s said this could create a form of systemic dependency, increasing the importance of operational resilience as financial institutions automate more customer services and core business processes.
The warning comes as artificial intelligence adoption accelerates across UK financial services.
A Treasury Committee report published in January found that more than 75% of UK financial services firms were already using AI, with the highest levels of adoption among insurers and international banks.
Current applications range from automating administrative work to supporting more important functions such as processing insurance claims and assessing customers’ creditworthiness.
The Committee has already raised concerns about the potential impact of AI on financial stability and consumer protection and called for greater regulatory oversight of important technology and cloud providers.
Moody’s identified data privacy, cyber security and fraud among the other significant risks created by wider AI adoption.
The agency also warned about “vendor dependence”, where a small number of dominant AI and infrastructure companies could gain greater influence over the prices financial institutions pay for access to their technology.
Banks may have some protection against that risk because many already have significant experience negotiating large technology contracts and retain control of valuable proprietary customer and financial data.
Some institutions are also exploring open-source AI models and partnerships with multiple technology providers to reduce their reliance on a single supplier.
Another potential risk involves the speed at which AI could help customers move money.
More sophisticated financial assistants could make it easier for consumers to identify accounts offering better interest rates and transfer deposits quickly, potentially increasing the risk of sudden outflows from individual banks.
Moody’s said maintaining depositor confidence and stable funding would therefore remain particularly important as financial services become increasingly automated.
The technology is also expected to reshape employment across the industry.
Moody’s estimates there is a 20% chance that by 2030 AI systems could be capable of performing work comparable with that of a competent mid-level employee, although that is a forecast rather than a prediction that 20% of financial-sector jobs will disappear.
Lloyds Banking Group is among the major UK banks placing AI at the centre of its future strategy.
Its Accelerate 2030 programme includes wider use of AI in customer services, commercial banking, fraud management, engineering and internal processes, alongside a broader programme of technology modernisation.
The bank is targeting around £2 billion of gross cost savings between 2027 and 2030, with AI-enabled automation and improvements in employee productivity expected to contribute.
Chief executive Charlie Nunn has acknowledged that greater automation will change some roles while also requiring the bank to retrain existing employees and recruit people with new technical skills.
Despite the risks, Moody’s expects financial institutions to continue increasing their use of AI as banks compete to deliver faster services, lower costs and more personalised products.
The growing challenge for regulators and financial institutions will be ensuring those benefits do not create new points of failure within a system increasingly reliant on technology provided by a relatively small group of companies.