What happened
Germany's financial regulator, BaFin, cautioned banks regarding increased risks stemming from the AI sector's growing concentration and interconnectedness. This introduces a requirement for financial institutions to assess their exposure to the AI industry, specifically evaluating reliance on a limited number of AI providers and the potential impact of supply chain disruptions. The warning highlights a lack of transparency in AI development company relationships, necessitating greater scrutiny of the AI ecosystem's complex dependencies. Financial institutions are already utilising the German framework for pilot audits in preparation for EU AI Act conformity assessments.
Why it matters
The BaFin caution introduces an operational constraint requiring financial institutions to conduct heightened due diligence on AI provider relationships and supply chain dependencies. This increases exposure for risk management and procurement teams to unquantified systemic risks due to a stated lack of transparency in the AI development sector. The burden falls on compliance and risk departments to evaluate the potential impact of disruptions from concentrated AI providers, necessitating a more rigorous assessment framework for AI integration and usage.
