Innovation and resilience: managing the risks of a changing financial system

The views expressed in these remarks are those of the speaker in their role as FSB Secretary General and do not necessarily reflect those of the FSB or its members.

Introduction

It is a pleasure to be here. I’ll start this speech where all speeches about the modern financial system start – ancient Greek philosophy. Over 2000 years ago, the Greek philosopher Heraclitus said it was impossible to step into the same river twice, because the river is always changing. This is an apt metaphor for regulators trying to manage the financial system. Last week, I was at the G20 meetings in Bangkok. There were discussions on a lot of topics, including geopolitical developments, the rapid pace of development of artificial intelligence and stablecoins, efforts to modernize financial regulation, and the perceived deterioration of multilateralism. It seems that Heraclitus was right, the financial system river is always moving, and regulators can’t be complacent and assume that what was appropriate yesterday will be appropriate today or in the future.

This fast-changing financial system is currently operating in a challenging environment. Conflicts in the Middle East and Ukraine are contributing to volatility. Some long-term bond yields have reached decade highs. Nonbank financial intermediation, including private credit, continues to expand and is increasingly interconnected with other parts of the financial system. The boom in artificial intelligence (AI) is driving unprecedented, increasingly debt-financed investment in infrastructure. These developments reinforce the need for coordinated international action. Within this challenging environment, the financial system is undergoing profound structural change driven by, among other things, rapid technological advancements.

With that quick introduction to the environment we find ourselves in, I’d like to discuss the work the FSB is doing in AI, stablecoins, regulatory modernisation and resolution to keep pace with the fast-flowing, ever changing river.

Artificial intelligence and responsible innovation

Preserving financial stability in a rapidly changing technological landscape is a key challenge, and artificial intelligence is a good example of that. AI is being rapidly adopted across banks and nonbanks. It offers significant opportunities, including improved efficiency, better risk assessment, enhanced customer services and potentially broader access to financial products.

But AI can also introduce new risks and amplify existing ones. These include dependencies on a small number of third-party providers, challenges in model governance, data quality concerns, cyber risks, operational vulnerabilities and difficulties in explaining or validating outputs. These risks may become particularly significant when advanced or frontier AI models are integrated into critical financial processes. A disruption or weakness affecting one provider or widely used model could have implications across multiple institutions and jurisdictions.

Last week, the FSB published its Sound Practices for Responsible Adoption of AI. The twelve sound practices are intended as a flexible toolkit, rather than as minimum standards. They can be adapted to the size, business model and risk profile of an institution, as well as to the nature and scale of its AI adoption. The practices address organisation-wide AI governance, lifecycle management, cyber-risk mitigation and oversight of third-party providers. They are designed to assist financial institutions and authorities in considering whether, how and at what scale AI should be adopted.

AI capabilities, use cases and associated risks will continue to develop, and our policy response must remain proportionate, flexible and forward-looking. The FSB will continue to monitor this area because the river is always changing.

Vulnerabilities related to global stablecoins

Global stablecoins provide another clear example of how technology is changing the financial system. At present, stablecoins are used predominantly within crypto-asset markets, but their use as a means of payment or store of value could grow and have vast implications for the financial system. Stablecoins can easily cross borders, which offers benefits for the holders. However, this may also limit the ability of any single jurisdiction to assess or address the vulnerabilities comprehensively.

National regulatory frameworks are developing at different speeds, and their interaction at the international level often remains uncertain or undefined. Effective oversight, therefore, requires cross-border cooperation and information sharing, as well as a clear understanding of how risks can be transmitted across borders and sectors.

The FSB is examining these cross-border vulnerabilities and the data needed to monitor them, building on our 2023 high-level recommendations for global stablecoin arrangements, as well as our 2025 review of their implementation. A summary of this ongoing work was submitted to the G20 last week.

Three areas were highlighted for continued attention. First, enhancing monitoring of cross-border vulnerabilities. Second, supporting implementation of the 2023 recommendations, particularly by fostering international cooperation and information‑sharing. Third, gathering information on emerging approaches to planning for the distress or failure of global stablecoin arrangements, with a particular focus on cross-border issues.

Modernising regulatory and supervisory frameworks

Responding to emerging technologies is part of a broader regulatory modernisation effort among financial authorities.

Regulatory and supervisory frameworks must adapt to new technologies, new forms of financial intermediation, changing market structures and evolving economic conditions. Frameworks also need to incorporate lessons learned to identify opportunities to improve effectiveness and efficiency and address any unintended consequences.

Modernisation efforts are widespread in FSB member jurisdictions. Done properly, modernisation is not equivalent to deregulation. It should preserve or enhance financial system resilience. So, to promote greater alignment across these efforts, the FSB has published, for consultation, a report containing eight principles for modernising regulatory and supervisory frameworks. The principles aim to help financial authorities keep regulation and supervision current, focused on the most important risks, and efficient. They encourage the consideration of proportionality, coordination among authorities, and robustness by using consultation and impact assessments.

The principles will be finalised in 2027, following consultation and further engagement with stakeholders. This process will be important. Modernisation principles must be grounded in evidence, informed by experience, and pursued consistently with the lessons of past crises. Again, the river continues to flow. We have to keep up.

Strengthening resolution

In a period of rapid change, it is even more important that jurisdictions fully implement post-2008 regulatory reforms.

The reforms instituted after the Global Financial Crisis have strengthened the resilience of the global financial system, and that achievement must be preserved. Despite this progress, more work is needed. The FSB’s 2025 Interim Implementation Monitoring Review (IMR) identified uneven implementation of important reforms.

A particularly important area for improvement is public sector funding for banks in resolution. Our Peer Review on that subject assesses how jurisdictions are implementing the FSB’s policies on temporary public sector funding for banks in resolution and was sent to the G20 last week.

The findings are clear. Only one in five FSB member jurisdictions is fully compliant with the relevant policies, while approximately half have material gaps. Incomplete implementation limits authorities’ ability to resolve systemic banks and could affect financial stability in periods of stress.

This is an area where progress is both necessary and urgent.

Conclusion

As Heraclitus pointed out over 2000 years ago, things are constantly changing. Innovation and structural changes to the financial system are transforming finance, and the financial system we have today is different from the system that existed at the time of the Global Financial Crisis. Regulation and supervision must keep pace with these changes.

Bringing Heraclitus to modern times, a 20^th-century Italian writer, said, “if we want everything to remain the same, everything must change.” We need modern regulatory frameworks to respond to innovation. We need international coordination to address risks that no single jurisdiction can manage alone. And we need effective implementation to make those frameworks credible.

Preserving global financial stability requires a continued commitment to cooperation from all our members, because financial stability is a shared public good.

Thank you.