U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has warned that artificial intelligence (AI) could spark a financial crisis in the next decade. Noting that he has raised this concern at the Financial Stability Board and at the Financial Stability Oversight Council, the SEC chief stressed: “I think it’s really a cross-regulatory challenge.”
SEC Chair Gary Gensler’s AI Warning
The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, warned in an interview with the Financial Times, published Monday, that a financial crisis caused by artificial intelligence (AI) is “nearly unavoidable” in the next decade without prompt regulatory action.
Gensler opined: “It’s frankly a hard challenge. It’s a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, individual brokers; it’s just in the nature of what we do.” The SEC chief continued:
This is about a horizontal [matter whereby] many institutions might be relying on the same underlying base model or underlying data aggregator.
The SEC chairman explained that even if current regulatory measures were updated, “it still doesn’t get to this horizontal issue.” He cautioned: “If everybody’s relying on a base model and the base model is sitting not at the broker-dealer, but it’s sitting at one of the big tech companies … And how many cloud providers [which tend to offer AI as a service] do we have in this country?”
Gensler revealed: “I’ve raised this at the Financial Stability Board. I’ve raised it at the Financial Stability Oversight Council. I think it’s really a cross-regulatory challenge”.
Wall Street has integrated AI across various functions, encompassing robo-advisors, account onboarding procedures, and brokerage apps. Gensler is concerned about the potential for herd behavior among entities reliant on identical data models. He fears that such behavior could jeopardize financial stability and serve as a catalyst for the next crisis.
The SEC chairman warned:
I do think we will in the future have a financial crisis.
This was not the first time that Gensler has warned about AI. In August, he said that AI is poised to drive future financial crises. Nonetheless, he believes that “AI is going to continue significantly transforming science, technology, and commerce.”
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