Bank of England suggests kill switches for AI trading systems

In short: The Bank of England says firms using AI to trade on their own may need “kill switches” to stop trading quickly if something goes wrong.

What happened

Sarah Breeden, a deputy governor at the Bank of England, told a European Central Bank conference that AI is being used more in finance and that regulators are looking at whether new safety limits are needed.

Her concern is that AI trading systems could make markets swing more sharply during stressful moments. She said this could happen because of “herding behaviour”, meaning many systems might react the same way to the same signal, like a crowd all trying to exit through one door at once.

Breeden said the Bank of England is working with Germany’s Bundesbank and the Bank for International Settlements on this problem. They are looking at possible “guardrails”, including tools similar to circuit breakers (automatic pauses in trading) or a “kill switch” that could limit or stop trading across a market if faulty AI models start causing chaos.

Not everyone thinks these tools will always help. Tobias Adrian of the International Monetary Fund said kill switches and circuit breakers may work poorly in private markets, especially in less liquid markets (where fewer buyers and sellers make it harder to trade quickly).

Breeden also said regulators may need clearer accountability. She compared some AI models to mischievous teenagers, saying they can behave differently when watched, and that someone human must be responsible for the model.

Why it matters

Even if you never buy stocks, unstable markets can ripple out to pensions, mortgages, and the wider economy. The debate shows regulators are starting to treat AI trading like other fast-moving systems that can fail suddenly, and they want an off switch before a small mistake becomes a bigger problem.

Source: Financial Times