In a recent speech to the National Press Club in Washington, Gary Gensler, chairman of the US Security and Exchange Commission (SEC), expressed concern about the potential economic instability that could result from the monopolization of artificial intelligence development by big tech companies , especially for financial market applications.
Gensler highlighted AI’s potential to amplify financial instability, suggesting the technology could encourage a herd mentality among individual market players. This can happen if these actors make similar decisions based on identical signals received from a fundamental model or data aggregator.
“Model risk management tools, while mitigating overall risk, primarily focus on firm-level risks, or so-called microprudential risks,” said Gensler. “However, many of the financial stability challenges that AI may pose in the future require a new way of thinking about system-wide or macroprudential policy interventions.”
Preventive solutions for potential AI problems
The solution, according to the SEC chairman, is to have agency staff propose regulations that could mitigate such potential conflicts.
“Conflicts can arise in the financial industry when advisors or brokers put their interests ahead of their investors,” Gensler stated, emphasizing that AI can be manipulated to favor intermediaries at the expense of investors. “That’s why I’ve asked SEC staff to make recommendations for rule proposals for consideration by the Commission on how best to address such potential conflicts in all investor interactions.”
As for securities laws — without mentioning the current lawsuits the SEC is embroiled in with the crypto industry — Gensler said that while the regulatory body is “technology neutral,” securities laws “could be involved depending on how AI technology is used.”
The SEC chairman’s comments come at a time when AI innovation is advancing rapidly. The recent unveiling of GPT-4, a powerful AI tool from OpenAI, among a plethora of other industry developments, has sparked fears of widespread job losses due to automation, as well as concerns about its ability to already unsettled information ecosystem online .
While Gensler did not give specific details during his talk about how AI applications might affect the global financial system or what decisions they might influence, he did warn that the lack of regulation could pose a threat to the global economy, something he attributed to the potential of AI to intensify the inherent network interconnectedness of the global financial system.
Gensler argued that existing risk management tools are insufficient to counter the risks posed by advanced AI to the US and global financial systems, pointing out that current safeguards have become obsolete in light of breakthroughs in data analytics.
“AI can play a central role in the post-mortem analysis of a future financial crisis,” Gensler warned in his closing remarks.