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SEC warns: Artificial intelligence will cause almost “inevitable” financial crisis

The U.S. Securities and Exchange Commission (SEC) has raised alarms about a looming threat associated with artificial intelligence.

While much of the current debate around AI has been centered on potential job losses, challenges to human creativity, intellectual property theft, and even the existential threat to humanity, there’s a new concern on the horizon.

The SEC’s chairman warns that a financial crisis spurred by advances in AI could be “nearly unavoidable.” This adds another layer to the complexities of understanding and regulating artificial intelligence in our modern world.

Artificial intelligence will cause financial crisis


Gary Gensler, Chairman of the U.S. Securities and Exchange Commission, shared with the Financial Times his concerns about the looming threat of artificial intelligence in the financial sector. He believes that the growing dependence on AI systems could very well precipitate a collapse of the financial markets within the coming decade.

His cautionary note highlights the dangers stemming from the homogeneity in AI tools, which many financial institutions utilize for tasks such as market monitoring, account automation, and decision-making.

Gensler advocates for the establishment of regulations that supervise not just the advanced AI models but also the financial entities employing them. However, implementing such solutions isn’t straightforward.

As Gensler points out, the challenge lies in the fact that existing regulations predominantly address individual entities, be it banks, brokers, or funds. His concerns center on a broader, systemic issue, where multiple institutions might lean heavily on a singular AI model or data source.

Regulatory laws are not ready


While AI firms have traditionally opted for self-regulation to mitigate the risks of their technologies, there’s a mounting push from global governments for more stringent oversight.

The European Union is in the process of drafting an Artificial Intelligence Law which may necessitate that developers of generative AI tools undergo a review process before they can publicly launch their products. In tandem, the U.S. is also assessing the landscape of AI to pinpoint areas in need of regulation. However, concrete regulatory frameworks remain elusive in both the EU and the USA.

Leading financial institutions such as Morgan Stanley and JPMorgan have already integrated AI models to assist investors and advisors. Yet, a stark contrast exists with firms like Goldman Sachs, Deutsche Bank, and Bank of America, which, earlier this year, prohibited their workforce from utilizing ChatGPT at work.

It’s worth noting that the interplay of technology and finance has led to disruptions in the past. A case in point is the 2010 incident where a British trader, operating from his family home in London, manipulated the Chicago Mercantile Exchange using high-frequency orders, leading to nearly $1 trillion vanishing momentarily. With the current advancements in generative AI, the potential for an even larger-scale disturbance is conceivable.


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