Bank of England Probes AI Stock Investing Amid Financial Risk Concerns

The Bank of England (BoE) has launched an investigation into the concentration of investments in Asian artificial intelligence (AI) semiconductor stocks, such as South Korea's SK Hynix and Taiwan's TSMC, out of concern that it could spread into a financial system risk.

According to the Financial Times, the Prudential Regulation Authority under the Bank of England is reviewing the prime brokerage businesses of investment banks operating in London.

Prime brokerage is a business where investment banks provide various services to institutional investors such as hedge funds, including lending money, brokering trades, lending shares for short selling, and custody and management of assets.

The Bank of England's assessment is that as leverage trading by hedge funds surges due to the AI investment boom, the exposure of investment banks to risk is also growing.

Major global investment banks are supporting global hedge funds' investments in Asian stocks through their London operations.

As the stock prices of AI semiconductor-related companies like SK Hynix and Taiwan's TSMC soared due to the AI boom, the value of assets held by clients increased, and borrowing and leveraged investments collateralized by these assets also grew rapidly.

However, as volatility increases, risks are also expanding.

In response, the Financial Times pointed out that if stock prices plummet in leveraged investments, hedge funds may fail to absorb losses and default on their debts, potentially transferring the risk to the investment banks that provided the funds.

The Bank of England is also examining whether some hedge funds are using options to invest in Asian stock markets with high leverage, or scaling up their trading using funds from Asian retail investors, who tend to withdraw money quickly during crises.

Depending on the results of the investigation, the Bank of England may send official letters to banks' chief risk officers or issue a warning message to the industry as a whole.

If it is determined that a specific bank's risk is significant, there is also the possibility of strengthening supervision, such as requiring them to hold more liquid assets in preparation for market crashes or major client defaults.

(Reported by Jung Da-eun, Video Editing by Seo Byeong-wook, Design by Lee Jung-joo, Produced by SBS Digital News)
※ Please note: This article was translated by AI and may contain errors.