LONDON (Reuters) -Artificial intelligence could be fundamentally disruptive but help boost productivity in Britain's economy, posing a challenge to regulators who should be open to new rule-making approaches, a Bank of England (BoE) policymaker said on Tuesday.

Britain has so far taken a cautious approach to formulating bespoke rules for AI, unlike the European Union, whose members on Tuesday formally backed landmark new rules that will likely set a benchmark for other countries.

BoE Financial Policy Committee member Randall Kroszner looked at how the BoE would have to juggle two formal objectives: maintaining financial stability and aiding economic growth, such as by allowing innovation.

"The challenge is therefore to develop a regulatory framework that fosters the flowering of creativity and innovation but takes into account the potential financial stability risks," Kroszner said in a speech.

"Regulators, however, should be open to new approaches that might shape these frameworks."

When innovation is disruptive, it is more difficult for regulators to know what actions to take to achieve financial stability, he said.

"There might not be a common framework for either assessing the likely impact of the innovation or the consequences (intended and unintended) of regulatory action," he said.

The BoE's new "digital securities sandbox" will allow companies to test new technologies under regulatory supervision, but innovations such as ChatGPT and other AI tools have the potential for extraordinarily rapid scaling.

"In such a circumstance, a sandbox approach may not be applicable, and policymakers may themselves need to innovate further in the face of disruptive change," Kroszner said.

In the meantime, regulators should remain alert, in listening mode and be keen to understand AI better, he said.

Global leaders and officials taking part in an AI summit being hosted by South Korea and Britain are expected to strike new agreements focused on how to practically regulate AI.

(Reporting by Huw Jones; editing by Mark Heinrich and Alex Richardson)

By Huw Jones