SEC Chair Gensler Warns of AI-Induced Financial Crisis in Next Decade
In a candid interview with the Financial Times, the US Securities and Exchange Commission (SEC) Chairman Gary Gensler warned that artificial intelligence (AI) could drive a financial crisis in the next decade. Gensler's concerns extend beyond speculation, having conveyed his apprehensions to both the Financial Stability Board and the Financial Stability Oversight Council. He emphasized that this impending crisis is a multifaceted regulatory challenge that demands immediate attention.
Gensler's Forewarning on the AI-Induced Financial Crisis
Gary Gensler, the chairman of the SEC, forewarned in his interview with the Financial Times published on Monday that an AI-induced financial crisis is "nearly unavoidable" without swift regulatory intervention in the coming decade.
He acknowledged the complexity of the issue, as existing regulations predominantly focus on individual financial institutions, including banks, money market funds, and brokerage firms. He explained:
"It's frankly a hard challenge. It's a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, and individual brokers; it's just in the nature of what we do."
The Horizontal Challenge
The SEC Chair stated:
"This is about a horizontal matter whereby many institutions might be relying on the same underlying base model or underlying data aggregator."
Even if current regulatory frameworks were to be updated, Gensler maintained that they would still fall short of addressing this horizontal challenge. He cautioned:
"If everybody's relying on a base model, and the base model is sitting not at the broker-dealer but at one of the big tech companies... And how many cloud providers, which tend to offer AI as a service, do we have in this country?"
Gensler's Multi-Platform Concerns
Gary Gensler did not confine his concerns solely to the SEC. He voiced them at the Financial Stability Board and the Financial Stability Oversight Council as well. The challenge transcends individual regulatory bodies, making it cross-regulatory, he expressed.
AI Integration on Wall Street
AI has found its way into various operational facets across Wall Street, including robo-advisors, account onboarding procedures, and brokerage applications. Gensler's apprehensions center around the risk of herd behavior among entities relying on identical data models. This uniformity, he fears, could undermine financial stability and act as a trigger for the next financial crisis.
Gensler's Stark Warning
The SEC Chairman warned:
"I do think we will in the future have a financial crisis."
This is not the first time he has warned about AI. In August, Gensler made it clear that AI has the potential to drive future financial crises. However, he maintains an optimistic outlook, acknowledging that "AI is going to continue significantly transforming science, technology, and commerce."
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