Without regulations in place, the boss of the SEC expects a financial crisis stemming from the widespread use of artificial intelligence in the next decade.
United States Securities and Exchange Commission (SEC) Chair Gary Gensler believes a financial crisis stemming from the widespread use of artificial intelligence (AI) is “nearly unavoidable” without swift intervention by regulators.
In an interview with the Financial Times, Mr. Gensler outlined why, in his opinion, regulators must quickly find a way to manage risks posed to financial stability by the concentration of power in artificial intelligence platforms.
Wall Street Banks have been experimenting with AI for years to detect fraud and conduct market surveillance. Still, recently, they have expanded the use of AI to include account opening processes, brokerage apps, and more.
Mr. Gensler says he is concerned that multiple institutions could start basing their decisions on the same data models, leading to herd mentality and undermining stability in the financial markets, inadvertently unleashing another crisis that could trigger a recession.
“I do think we will in the future have a financial crisis, and in the after-action reports, people will say ‘Aha! There was either one data aggregator or one model we’ve relied on,” he said.
“Maybe it’s in the mortgage market, maybe it’s in some sector of the equity market,” Mr. Gensler added.
He predicts a financial crisis triggered by AI could happen as soon as the late 2020s or early 2030s. The last and most destructive market turmoil was the global financial crisis (GFC) between mid-2007 and early 2009, which caused the worst worldwide economic crisis since the Great Depression of 1929.
Experts say the GFC was triggered by a perfect storm of events, starting with a downturn in the American housing market and years of reckless risk-taking by investors and financial institutions alike. Regulation and policy errors were also considered a factor. Through linkages in the global financial system, the crisis spread worldwide.
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