SEC’s Gary Gensler Sounds Alarm on AI’s Impact in Finance
Gary Gensler, the head of the Securities and Exchange Commission (SEC), has expressed concerns that the proliferation of AI technology could potentially lead to a financial crisis in the near future.
In an interview with the Financial Times, Gensler highlighted the complexities of regulating AI in the financial industry due to the widespread use of shared base models.
Moreover, these models may not be developed by financial institutions themselves but rather by technology companies operating outside the purview of regulatory bodies like the SEC and other financial watchdogs.
Gensler emphasized the unique challenge posed by this situation, as traditional financial regulation typically focuses on individual institutions, banks, money market funds, and brokers. However, the advent of AI introduces a horizontal dimension where multiple institutions might rely on the same foundational model or data aggregator.
This raises concerns about the concentration of power, especially when key base models are controlled by major tech companies with extensive cloud infrastructure.
Gensler warned of the potential for herd behavior among financial firms if they all adopt the same AI models, which could ultimately contribute to a future financial crisis. He suggested that post-crisis analysis might reveal a single data aggregator or model that had been heavily relied upon, leading to a “Eureka!” moment.
To address these challenges, Gensler has initiated discussions with the Financial Stability Board and the Financial Stability Oversight Council, recognizing that this issue transcends the boundaries of individual regulatory bodies and requires a collaborative approach to address this cross-regulatory challenge.