SEC Chair Says AI Could Trigger A Financial Crisis Within The Decade
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The chair of the US Securities and Exchange Commission (SEC), Gary Gensler, believes it is “nearly unavoidable” that artificial intelligence (AI) will cause a financial crisis within the next ten years.
Gensler has urged regulators to take the initiative and step in to regulate this technology, whose popularity continues to rise by the day.
SEC Chair Says AI Will Cause A Financial Crisis
Gensler held an interview with the Financial Times discussing AI’s implications on the financial markets. He admitted that regulating the AI sector would be a “hard challenge” as financial institutions that adopt the technology might operate under similar base models.
Technology companies might develop the base models for the AI technology and not the financial institutions relying on this technology. However, the companies developing the technology are not regulated by the SEC and other financial market regulators in the US.
A Major Problem For Regulators
During the interview, Gensler said that the issue of AI adoption posed a financial stability problem as the SEC’s regulators were tailored on individuality. Therefore, when many institutions rely on the same base model and data aggregator, it challenges the commission.
“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,” Gensler said. “And this is about a horizontal [matter whereby] many institutions might be relying on the same underlying base model or underlying data aggregator.”
The SEC head further opined that if all financial institutions relied on a single base model that was not positioned at the broker/dealer but rather at a leading tech company, it posed an issue. He also raised the issue of many cloud providers in the US alone, which made regulating the technology industry more challenging.
Gensler also said that if a firm relied on the same models, it could promote herd behavior, which would consequentially trigger a financial crisis in the future.
Gensler further said that regulating the financial industry and adopting AI was a matter that needed the intervention of multiple regulatory agencies and posed a “cross-regulatory challenge.” He noted that he had discussed the matter with the Financial Stability Board and the Financial Stability Oversight Council.
