The Central Bank of Cyprus (CBC) has highlighted a new warning from the European Systemic Risk Board (ESRB) over the growing cyber risks posed by advanced artificial intelligence models, saying it will continue to monitor developments closely and expects financial institutions to strengthen their resilience against emerging threats.

The warning concerns frontier artificial intelligence models, which the ESRB said could significantly reshape the cyber threat landscape in the short to medium term by making cyberattacks faster, larger in scale and more sophisticated.

According to the ESRB, these advanced AI models have the potential to accelerate the discovery of software vulnerabilities, support the development and exploitation of malicious cyber tools and significantly reduce the time available for organisations to detect and respond to attacks.

The European body warned that these developments represent systemic cyber risks affecting the financial sector as a whole rather than individual institutions.

The CBC said the ESRB is calling for a coordinated response across the European Union, involving national authorities, financial institutions and critical technology service providers.

The central bank added that it will continue to monitor developments closely and expects supervised financial institutions to take all necessary measures to strengthen their cyber resilience against these emerging risks.

The warning comes as the European Central Bank (ECB) has also stepped up its focus on the cybersecurity implications of rapidly advancing artificial intelligence.

According to the ECB, euro area banks have been given until October 31 to submit detailed plans outlining how they intend to address AI-enabled cyber threats that could undermine confidence in the financial system and disrupt payment services.

In a letter sent to bank chief executives, the ECB said recent advances in frontier AI models have potentially profound implications for the confidentiality, integrity and resilience of banks’ information and communication technology systems.

The ECB instructed banks to prioritise the protection of internet-facing systems and other exposed technology assets, including third-party software and open-source components.

It also urged lenders to accelerate the remediation of identified vulnerabilities, strengthen cyber monitoring capabilities, improve cyber hygiene, modernise ageing technology infrastructure and reinforce crisis management, recovery planning and information-sharing arrangements.

To allow banks to focus resources on these priorities, the ECB said it has postponed a separate information technology survey and may adjust the timing of inspections and other supervisory activities.

The ECB’s announcement was accompanied by the ESRB’s broader warning that large-scale cyber incidents could undermine public confidence in financial institutions and, in severe scenarios, trigger bank runs or broader market instability affecting institutions or countries perceived as less secure.

“These developments are a source of systemic risks to the financial system,” the ESRB said.

The ESRB outlined several potential scenarios in which AI-enhanced cyber capabilities could amplify existing threats.

These include a gradual erosion of confidence in smaller financial institutions, state-backed cyber espionage operations and coordinated attacks targeting payment, clearing and settlement systems.

The board also warned that misinformation campaigns could intensify the impact of cyber incidents, while attacks could spread rapidly through common technology providers and shared software widely used across the financial sector.

The latest warning reflects growing concern among European regulators that advances in artificial intelligence, while offering significant opportunities for innovation and productivity, are also creating new challenges for cybersecurity and financial stability.

For Cyprus, the CBC’s statement signals that cyber resilience will remain a key supervisory priority as banks and other financial institutions adapt to an evolving threat environment increasingly shaped by artificial intelligence.