US SEC AI Warning: AI chatbots could trigger future financial crisis, US SEC warns – Times of India
The US Securities and Exchange Commission (SEC) has raised concerns regarding the potential impact of generative AI on financial markets. Speaking at the National Press Club on Monday, SEC Chair Gary Gensler highlighted that the recent advancements in generative AI could lead to instability in the global economy.
Gensler worries that AI could lead to institutions relying on the same limited set of information to make critical decisions, which could lead to a scenario similar to 2008’s financial crisis.
According to Gensler, the high demand for data and computing power required for the development of artificial intelligence for financial markets would result in only a few big tech companies monopolising the field, potentially destabilising the global economy.
Gensler warned that a centralised dataset or model in finance could lead to similar consequences as the 2008 crisis.
If a model provides inaccurate or irrelevant information, financial institutions may end up relying on flawed data and making poor decisions, argues Gensler. This creates a risk similar to the 2008 financial crisis, where banks followed the lead of credit rates based on faulty information or the Twitter-fueled run on Silicon Valley Bank.
“AI may heighten financial fragility as it could promote herding with individual actors making similar decisions because they are getting the same signal from a base model or data aggregator,” said Gensler. Additionally, he mentioned that the emergence of generative AI and other deep-learning models may worsen the innate network interdependence of the worldwide financial system.
Gensler mentioned that generative AI has yet to be widely used in the field of finance. However, financial institutions have embraced AI for a while now. Firms have used AI systems for tasks such as analysing financial data, detecting fraud, and even SEC uses AI for market surveillance.
The SEC chair has consistently warned in recent months that not regulating AI could harm the global financial system and the economy. Relying solely on risk management tools will not be enough to mitigate the risks posed by advanced AI tools, says Gensler. Further, adding that existing safeguards have become outdated with breakthroughs in data analytics.
When a trading platform’s AI system considers the interests of both the platform and its customers, conflicts of interest can arise, noted Gensler. In his speech, he mentioned that he had asked the SEC staff to provide new regulatory proposals to address this issue.
The SEC is taking steps to develop regulations that will govern the use of AI and machine learning by investment advisers and broker-dealers, with potential rule proposals expected to be announced later this year. These regulations aim to address potential conflicts of interest that may arise from the use of AI in finance.
Gensler worries that AI could lead to institutions relying on the same limited set of information to make critical decisions, which could lead to a scenario similar to 2008’s financial crisis.
According to Gensler, the high demand for data and computing power required for the development of artificial intelligence for financial markets would result in only a few big tech companies monopolising the field, potentially destabilising the global economy.
Gensler warned that a centralised dataset or model in finance could lead to similar consequences as the 2008 crisis.
If a model provides inaccurate or irrelevant information, financial institutions may end up relying on flawed data and making poor decisions, argues Gensler. This creates a risk similar to the 2008 financial crisis, where banks followed the lead of credit rates based on faulty information or the Twitter-fueled run on Silicon Valley Bank.
“AI may heighten financial fragility as it could promote herding with individual actors making similar decisions because they are getting the same signal from a base model or data aggregator,” said Gensler. Additionally, he mentioned that the emergence of generative AI and other deep-learning models may worsen the innate network interdependence of the worldwide financial system.
Gensler mentioned that generative AI has yet to be widely used in the field of finance. However, financial institutions have embraced AI for a while now. Firms have used AI systems for tasks such as analysing financial data, detecting fraud, and even SEC uses AI for market surveillance.
The SEC chair has consistently warned in recent months that not regulating AI could harm the global financial system and the economy. Relying solely on risk management tools will not be enough to mitigate the risks posed by advanced AI tools, says Gensler. Further, adding that existing safeguards have become outdated with breakthroughs in data analytics.
When a trading platform’s AI system considers the interests of both the platform and its customers, conflicts of interest can arise, noted Gensler. In his speech, he mentioned that he had asked the SEC staff to provide new regulatory proposals to address this issue.
The SEC is taking steps to develop regulations that will govern the use of AI and machine learning by investment advisers and broker-dealers, with potential rule proposals expected to be announced later this year. These regulations aim to address potential conflicts of interest that may arise from the use of AI in finance.
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