Introduction
The Chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, predicts that an economic crisis triggered by artificial intelligence (AI) is imminent within the next 10 years. In an effort to garner support for proposed regulation related to AI, Gensler has been increasingly vocal about the potential disaster that AI could pose to the financial markets.
The Warning
According to Gensler, without government intervention to address the risks associated with AI, a crisis caused by the technology is “nearly unavoidable.” He suggests that homeowners and stockholders may be among those affected by this impending crisis. Gensler fears that future post-crisis analysis will reveal the overreliance on a single data aggregator or model as a key factor.
Gensler’s Concerns
Gensler has long anticipated the potential for an AI-induced financial crisis, but his concerns have intensified since the SEC proposed new regulation for the technology. He believes that AI has the potential to heighten financial fragility and increase systemic risks, particularly in the area of deep learning, a subset of AI.
The Proposed Regulation
In July, Gensler’s team at the SEC announced their intention to propose rules governing the use of predictive analytics and other tech tools by broker-dealers and investment advisers. These rules aim to ensure that investment firms prioritize the interests of their investors and neutralize any actions driven by the use of new technology that may put the firm’s interests first.
Criticism of the Regulation
Despite Gensler’s warnings and proposed regulation, criticism of the SEC’s rules has grown. Fifteen state financial officers, including treasurers and auditors, have expressed opposition to the proposed regulation, arguing that it would be expensive and inhibit the use of new technology. They suggest that the SEC should focus on providing real-world examples and evidence to justify their fears rather than imposing costly rules.
The Challenge Ahead
Gensler acknowledges that reaching Big Tech companies responsible for the AI models used by investors poses a cross-regulatory challenge. Solving this regulatory problem is crucial in avoiding the potential financial crisis caused by AI. It is a complex issue that requires careful consideration and collaboration between regulatory bodies.
