SEC Chairman Warns AI May Trigger Financial Crisis

• summy Morphe
• October 18, 2023
• News, Cryptonews
• AI, Financial, SEC Chairman
• 0 Comments

SEC Chairman Gary Gensler warns of AI-triggered financial crisis in the next decade, highlighting regulatory challenges due to shared AI models and data aggregators.

Key Takeaways:

• SEC Chairman Gary Gensler warns of an impending financial crisis caused by AI.
• Gensler highlights the challenge of regulating AI’s impact on financial stability.
• Concerns arise over the widespread reliance on common AI models and data aggregators.
• Wall Street’s integration of AI raises fears of herd behavior among financial entities.

U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler has issued a stark warning about the potential for artificial intelligence (AI) to trigger a financial crisis within the next decade. Speaking in an interview with the Financial Times, Gensler emphasized the need for swift regulatory action to avert this crisis.

SEC Chairman Gary Gensler warns of an ‘AI-caused financial crisis’ in the next decade unless further regulation is in place. A collective dependency on similar AI models could lead to herd mentality and destabilize markets. https://t.co/1NfjNBm4Os #AI #SEC #AIFinancialRisk pic.twitter.com/ul93aoD6HO

— Dr. Hubertus Becker (@hubertusbecker) October 17, 2023

Gensler Warns on AI

Gensler acknowledged the complexity of addressing this issue, citing the traditional regulatory framework’s focus on individual financial institutions. He elaborated, stating, “This is about a horizontal challenge, where many institutions might be relying on the same underlying base model or underlying data aggregator.”

The SEC chief expressed concern that even if existing regulatory measures were updated, they wouldn’t adequately address this horizontal challenge. He pointed out the risk posed by a scenario where multiple financial entities depend on a common base model hosted by a major tech company. Gensler questioned the number of cloud providers offering AI services in the country, raising the issue as a cross-regulatory challenge.

Gensler’s apprehension stems from the extensive use of AI on Wall Street, encompassing various functions like robo-advisors, account onboarding processes, and brokerage applications. He is particularly worried about the potential for herd behavior among financial institutions relying on identical AI data models, which could undermine financial stability and become a catalyst for the next financial crisis.

Despite these concerns, Gensler also acknowledged AI’s transformative potential in science, technology, and commerce.

Concluding Thoughts

Chairman Gensler’s warning underscores the critical need for regulatory bodies to adapt to the rapid integration of AI in the financial sector. The increasing reliance on AI-driven models poses systemic risks that demand a coordinated, cross-regulatory approach. While AI presents numerous opportunities for innovation, careful oversight and regulatory frameworks are essential to mitigate the looming threat of a future financial crisis.