SEC Chief Warns of AI Risks to Financial Stability

Key Insights

• US SEC Chairman Gary Gensler highlights the need to rethink financial system regulation due to the spread of artificial intelligence.
• AI can amplify financial volatility by promoting herding behavior among market participants.
• The SEC is exploring new rules to address the challenges posed by AI in the financial sector.

US Securities and Exchange Commission (SEC) Chairman Gary Gensler emphasized that the widespread adoption of artificial intelligence calls for a reevaluation of financial system regulations to uphold global stability, as reported by Bloomberg.

Addressing the risks of AI in finance

Gensler emphasized that AI can magnify financial volatility by impacting herding behavior. Market participants tend to make similar decisions guided by signals from the same model or data aggregator.

Regulators need to address the challenges posed by technology, and SEC officials are looking into the need for new rules. Model risk management manuals, most of which were written before the advent of artificial intelligence, need to be updated, but this will not be enough, Gensler said.

The commission will closely monitor equity violations by companies using artificial intelligence if the technology is being used, for example, for financial fraud, boosting stock yields, or targeting investors to a particular product, Gensler warned.

In particular, public companies should not mislead investors with their messages about the risks and opportunities posed by AI, he said.

The SEC itself could benefit from the use of artificial intelligence in oversight, analysis and enforcement, Gensler acknowledged.

Read also: Gemini CEO Slams SEC for Denying Bitcoin ETFs, Leaving US Investors with ‘Toxic’ Products

OpenAI’s ChatGPT under investigation

Earlier, the US Federal Trade Commission (FTC) decided to check the popular artificial intelligence ChatGPT from OpenAI for causing reputational damage to people by publishing false information about them, The Wall Street Journal reported.

The commission said it intends to investigate whether OpenAI engaged in “unfair or misleading practices that involve risks of harm to consumers, including reputational damage.” OpenAI did not respond to the WSJ request.

How can artificial intelligence impact the regulation of the financial system and ensure global stability? Let us know your thoughts in the comments.