The UK has the potential to lead financial innovation, but this must be supported by strong safeguards, according to Sarah Breeden, deputy governor for financial stability at the Bank of England.

Speaking at the UK Finance Digital Innovation Summit, Breeden stated that proper safety measures could help foster innovation. "Innovation and stability are not opposing goals; they are complementary," she said. "Stability leads to trust, which leads to sustainable innovation, and that’s what we all want."

She highlighted that technologies like AI and digital assets offer major opportunities, particularly for financial services, which are "macro relevant to the UK economy."

Breeden noted that while machine learning has existed for years, generative AI (genAI) is distinct due to its ability to learn independently at high speed. "AI has the potential to boost productivity, but the bad guys have it too," she warned. "Cybercriminals and fraudsters are already using AI, and we must be prepared."

She outlined several AI related risks, including opaque models, potential market volatility from AI driven trading strategies, and overreliance on third party AI providers. "If they’re the ultimate black box, how can we ensure financial institutions truly understand what’s happening?" she asked.

To mitigate these risks while encouraging innovation, Breeden cited initiatives such as the Bank of England’s AI consortium and its testing via digital sandboxes. "Our role is not to hinder innovation but to guide it," she said. "That means safe experimentation and effective regulation."

Breeden also addressed the Bank’s strategy for digital money, covering stablecoins, tokenised deposits, and the digital pound. "We want a diverse ecosystem to flourish," she explained. "This means innovation in private money, central bank money, and digital assets. But we must carefully manage risks throughout."

Reflecting on her term, which runs until October 2028, Breeden said: "My ideal legacy would be avoiding a financial crisis, but I want to achieve that while supporting growth and safe innovation."

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