Title: SEC Chair Warns of Impending Financial Crisis Triggered by AI, Calls for Regulation
In a recent interview with the Financial Times, Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), raised concerns about the potential risks posed by artificial intelligence (AI) in the financial industry. Gensler highlighted the urgency for regulations to address the use of AI models by Wall Street banks.
Gensler expressed his belief that the next financial crash could be instigated by AI, predicting that it could happen as early as the late 2020s or early 2030s. He emphasized the dangers of relying on models developed by technology companies, cautioning that such dependence could lead to economic chaos. Whether it be the mortgage market or a specific sector of the equity market, Gensler stated that future post-crisis analyses may reveal the over-reliance on a single data aggregator or model.
Highlighting the complexities associated with addressing this issue, Gensler called for comprehensive AI regulation that takes into account both the underlying AI models developed by tech companies and how these models are utilized by Wall Street banks. This, he explained, poses a “cross-regulatory challenge” as the current regulatory framework primarily focuses on individual institutions rather than contemplating a scenario where multiple institutions rely on the same base model or data aggregator.
Wall Street banks have shown considerable enthusiasm for embracing generative AI, evident from their avid adoption of technologies such as ChatGPT. Among the industry leaders, Morgan Stanley recently launched an AI assistant powered by OpenAI’s GPT4 model, enabling its employees to access market information and receive personalized recommendations. Similarly, JPMorgan reportedly filed a patent for an AI model dubbed ‘IndexGPT,’ designed to assist traders in making well-informed investment decisions.
However, despite the growing interest in AI adoption, banks have also implemented restrictions on the use of ChatGPT. Goldman Sachs, Deutsche Bank, and Bank of America banned their employees from utilizing the chatbot at work earlier this year, signifying a cautious approach amongst financial institutions.
As of now, the SEC has not provided further comments on the matter. Insider’s request for additional insights from the SEC remains unanswered outside regular working hours.
In conclusion, Gensler’s warning about the potential financial risks posed by AI and his call for robust regulation serve as a wake-up call for Wall Street. The incorporation of AI models into the financial sector must be accompanied by comprehensive measures to ensure stability and avert future financial crises.
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