The latest from the Bank of England on technological innovation and the importance of strong foundations

The Bank of England's (the Bank) mission is to promote “the good of the people of the United Kingdom by maintaining monetary and financial stability." The thrust of its most recent publication about technological transformation in artificial intelligence, distributed ledger technology and quantum computing goes straight to the heart of that mission, highlighting the need for:

• the financial services sector to embrace technological change but to do so responsibly;
• the Bank to understand the implications of these technological changes for monetary and financial stability and for firms active in the sector; and
• the sector to be efficient, resilient and positioned to contribute to overall economic growth.

Transformative

These three forms of innovative technology have been prioritised for further regulatory attention by dint of their potential for transformative outcomes. They have been referred to as having the potential to be the “most transformative technologies of our time”. In super summary, they are technologies that could rapidly transform the financial ecosystem and offer the greatest potential benefits alongside the greatest potential risks.

• AI

  If you are interested in what the UK financial services regulators are communicating about AI deployment in the UK, then you could click here to read my recent post about the FCA's Live Testing and also this post about the Bank of England's own deployment of AI. The Bank is very transparent about its journey with and use of AI indicating current use cases in predictive analytics, internal operations, and the deployment of AI assistants throughout its workforce. 

• DLT

  As with AI, many market participants and central banks are exploring the potential for transformative change that could be driven by DLT, technology which could fundamentally alter the shape of the traditional financial system by introducing shared ledgers capable of simultaneous updating, including in relation to clearing, payments, settlement and asset issuance. These systems, which would never sleep, could reduce costs and frictions, remove inefficiencies and introduce new functionalities. Similar obstacles to those in the way of AI deployment also exist for DLT, including significant upfront costs, lack of infrastructure interoperability, and traditional legal and regulatory frameworks that were not designed with them in mind. 

• Quantum computing

  In a galaxy far far away…preparations, at an even earlier stage than those we are currently at with AI and DLT, have already begun to prepare the financial services system for an increase in compute that could enable us to tackle problems that currently sit well beyond our reach. 

Growth

The Bank emphasises that while technological innovation is capable of driving growth, in order to do so sustainably, it must be adopted responsibly. This means that adoption must be built upon strong foundations and robust standards within a resilient financial system. Given a stable economic environment and a resilient financial system, sustainable growth can be boosted by the adoption of new technologies. It is hoped that these new technologies may have the potential to break the cycle of weak economic and productivity growth in which the UK has been stuck since before the Global Financial Crisis. It might also be able to mitigate against some of the economic headwinds faced by the UK and help the UK to maintain its position as a global financial centre of choice. 

Balance

For the Bank, as for the other financial services sector regulators in their approach to transformative technologies, there is a balancing exercise to be done between providing enough flexibility for innovation to flourish and enough certainty for firms navigating the route to responsible adoption of these new technologies. 

The Bank recognises the enormity of the change that these technologies could bring and acknowledges its function in ensuring that the financial services sector can responsibly and safely adopt them, unlocking their potential, and understanding and managing the potential risks. 

Risk

On risk, the Bank helpfully notes that “responsible” does not mean “riskless” but rather understanding and mitigating potential risks. The Bank is very active in its work to understand and address the risks, alongside assessing a range of possible outcomes, and monitoring and shaping the approach toward more widespread adoption of these technologies throughout the financial ecosystem.  

Trust

The Bank also emphasises the importance of stability and resilience in relation to public trust in the financial services sector. Any lack of regulatory prudence could introduce risks and undermine monetary stability and monetary policy, with consequences for domestic consumer and business trust and confidence, and for the UK's position globally. 

Actions

The Bank outlines its approach to delivering the right environment for the responsible adoption of novel technologies against the “levers” and “actions” that it can deploy:

• The Bank's actions include:
  • engaging with innovators;
  • adapting its core functions;
  • assisting in the removal of barriers to innovation; and
  • collaborating with other authorities, regulators and stakeholders.
• The Bank's levers include:
  • delivering infrastructure; and
  • convening and co-ordinating, sharing thinking and thought leadership.

Regulatory infrastructure 

The Bank has three forms of regulatory infrastructure available to it in order to promote the UK's safe transition to the financial system of the future:

• the physical “hard” infrastructure that underpins the financial system, including Real Time Gross Settlement (RTGS) which sits at the centre of the payments system and which has already been significantly enhanced to deliver greater interoperability, resilience and functionality, and which is due for further enhancement to enable a fresh round of innovation to be incorporated, including connectivity to external ledgers founded on or moving onto DLT (like the Land Registry for example), and overseas RTGS systems, and into next generation uses cases;
• “softer” infrastructure in the form of rules, regulations, standards, guidance and policies that provide important guardrails and inform the behaviour of regulated firms and the wider markets, and can steer responsible behaviours and expectations; and
• collaboration with other regulators, domestic and overseas, and with other stakeholders, to enhance the collective understanding of the risks, benefits, and challenges of adopting innovative technologies. There are many such collaborative bodies including CMORG, which is a collaboration between the Bank and UK Finance, and which produced a practical guide to managing Gen-AI risk earlier this year.  There are also collaborative spaces, like the Digital Securities Sandbox, in which those interested in exploring and developing use cases for innovative technologies can do so safely and with the support of experts. 

Constant review

The Bank is committed to keeping its approach to the safe and responsible adoption of technology under constant review. This includes:

• ongoing monitoring of and understanding of use cases;
• constant analysis of emerging and exacerbated risks and the evolving risk landscape both in the UK and around the world;
• continually calibrating risk mitigation strategies to ensure a proportionate approach;
• engaging with industry to ensure that the existing regulatory framework is providing the right environment to balance the competing demands of addressing harm but not stifling innovation;
• assessing whether AI-specific guidance to firms would be helpful given the need to balance out the confidence and reassurance sought by firms as against allowing flexibility for innovation to flourish;
• driving further into the training data being used to verify whether it is of a sufficiently high quality, whether it is adequately free of bias, and how AI in use is responding to it; and
• ongoing collaboration with other stakeholders in the UK and abroad to ensure that the collective approach is as aligned as possible and that the UK's approach is informed by global best practice.

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If you would like to discuss how current or future regulations impact what you do with AI, please contact me, Tom Whittaker, or Martin Cook. You can meet our financial services experts here and our technology experts here.

We are living through a period of profound technological transformation. Advancements in artificial intelligence (AI) have created new possibilities....The development of distributed ledger technology (DLT) has enabled innovations like the tokenisation of assets and of money, offering the potential for greater efficiencies and new functionalities. In the not-too-distant future, quantum computing could solve computational problems at scale that are beyond the capabilities of the best computers today....Our job is not to slow this innovation, but to shape it. While being vigilant to risks, we encourage responsible innovation – to make the financial system more resilient and efficient, support sustainable economic growth, and enable us to fulfil our responsibilities more effectively.

https://www.bankofengland.co.uk/report/2025/the-boes-approach-to-innovation-in-ai-dlt-quantum-computing