Gensler told the Financial Times that an AI-caused financial crisis could occur within the next decade if regulators fail to establish guardrails for the rapidly advancing technology.
However, he acknowledged that regulating AI in the financial sector will be a difficult task.
“It’s a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, individual brokers; it’s just in the nature of what we do,” Gensler said.
Instead, the concern with AI is “horizontal” because many institutions might rely on the same underlying base model or data aggregator, he said.
Gensler warned that if multiple institutions are basing their decisions on the same models, it could lead to herd mentality and undermine stability.
“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 told the UK newspaper.
The SEC proposed a new rule in July targeting broker-dealers and investment advisers’ use of predictive data analytics and similar technologies, including AI.
However, Gensler noted that the rule — which bars firms from using the technology in a way that puts their interests above those of investors — does not solve the “horizontal issue” at hand.
Read more in a full report at TheHill.com.
