AI First-Order Risks and Second-Order Risks

The OMFIF report, "What AI Means for Finance: Risks of an Intelligent Financial System," examines the profound impact of artificial intelligence on the global financial system. First-order risks, such as increased fraud via deepfakes and phishing, cybersecurity threats, and market manipulation, are highlighted. Second-order risks focus on the potential for AI to exacerbate inequality through labour market disruption and its impact on insurance markets and economic indicators. The report also addresses the challenges of regulating AI in finance, advocating for explainable AI models and international regulatory collaboration to mitigate risks and unlock AI's potential. Finally, the report suggests further research to better understand and manage the risks associated with AI in finance.

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