European regulators and central bankers warned that the rapid development of agentic AI may outpace rulemaking, raising concerns about financial stability.

At the European Central Bank’s annual meeting in Sintra, Portugal, on Tuesday, Bank of England deputy governor Sarah Breeden said AI could amplify market volatility during periods of stress and suggested that guardrails, analogous to circuit breakers or kill switches, might be needed to halt trading if faulty models cause a market meltdown. She noted that Europe’s capital channels to AI firms are narrower than those in U.S. equity markets.

Breeden’s remarks followed statements by ECB President Christine Lagarde, who in an interview with French outlet Les Echos warned that AI presents a “major risk,” compared with earlier cybersecurity threats. Lagarde emphasized the speed of AI progress and the current lack of sufficient defensive funding.

Nikhil Rathi, chief executive of the UK’s Financial Conduct Authority, told CNBC that traditional rulemaking cycles are too slow for AI innovations that can evolve within weeks or months, calling for new collaborative tools and a different approach to market engagement.

The Bank for International Settlements cautioned on June 28 that AI “exuberance” could lead to sharp asset price declines if central banks tighten policy, potentially creating disruptive macro‑financial feedback loops. Tobias Adrian of the IMF highlighted a possible maturity mismatch between the duration of physical assets and the duration of debt, while Breeden said rising debt financing could increase stability risks if AI‑related asset prices fall.

Bankers have also linked AI risks to crypto, warning that AI could disrupt traditional financial systems.

The warnings underscore the need for updated regulatory frameworks as AI development accelerates, though concrete policy responses remain pending.