Securities and Exchange Commission (SEC) Chairman Gary Gensler warned in a new interview that artificial intelligence (AI) will eventually lead to financial crises.
“This technology will be the center of future crises, future financial crises,” Gensler told The New York Times. “It has to do with this powerful set of economics around scale and networks.”
Gensler predicted the future business systems in the U.S. will be reliant on two or three foundational models, which he says would make a financial crash more likely due to “herding,” which means all companies will rely on the same information.
The SEC proposed a new rule last month that would require investment advisers to rid conflicts of interest in their technologies. Gensler said in a press release at the time that AI could place brokers’ or investment advisers’ interests above the investors’ interests, which is what the proposed rule would aim to curtail.
“You’re not supposed to put the adviser ahead of the investor, you’re not supposed to put the broker ahead of the investor,” he told the Times. “And so we put out a specific proposal about addressing those conflicts that could be embedded in the models.”
He also said if AI gives out “faulty” financial advice, investment advisers are still held responsible for it.
“Investment advisers under the law have a fiduciary duty, a duty of care, and a duty of loyalty to their clients,” Gensler said. “And whether you’re using an algorithm, you have that same duty of care.”