TL;DR Breakdown
- SEC Chairman Gary Gensler warns that AI could lead to market volatility and accountability issues.
- Gensler’s 2020 research paper argues current regulations can’t manage deep learning risks in finance.
- Critics say Gensler’s concerns are theoretical; others predict AI could boost the economy.
Description
Artificial intelligence (AI) represents a potentially transformative and highly disruptive force for the financial industry, as per Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC). Rather than the usual suspects of cryptocurrencies and digital tokens, it’s the implications of AI that have been central to Gensler’s concerns lately. Gensler, with his longstanding … Read more
Artificial intelligence (AI) represents a potentially transformative and highly disruptive force for the financial industry, as per Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC). Rather than the usual suspects of cryptocurrencies and digital tokens, it’s the implications of AI that have been central to Gensler’s concerns lately.
Gensler, with his longstanding history in technology, is convinced that AI is the most transformative innovation of our generation. Its ability to automate many human tasks has far-reaching implications for the financial sector, an industry handling trillions of dollars of assets. AI-generated nudges, investment advice, and recommendations could potentially reshape the face of finance. While the prospect of better client service is enticing, Gensler warns of the dangers of unchecked AI, which could obscure the parties responsible when things go wrong.
Interestingly, Gensler’s history with AI extends back to the ’90s when he first considered the technology’s potential after the defeat of Russian chess grandmaster Garry Kasparov by IBM’s supercomputer, Deep Blue. Gensler’s fascination with AI was reignited during his tenure at the Massachusetts Institute of Technology (MIT), where he delved into the mathematics behind AI and machine learning with the help of Professor Aleksander Madry.
This journey culminated in Gensler co-writing a paper in 2020 titled “Deep Learning and Financial Stability.” The paper detailed the risks that deep learning, a subset of AI, presents to financial stability. It posited that the current regulatory frameworks are ill-equipped to manage such risks. As more major trading houses adopt AI, Gensler noted the risk of these models either intentionally or unintentionally coordinating and communicating, leading to greater volatility and instability.
During his tenure as SEC Chief since 2021, Gensler has been a vocal commentator on the implications of AI and machine-learning tools. His criticisms revolve around the lack of transparency in AI-driven decision-making processes and the potential for new technologies to mask fraudulent practices.
In July, Gensler became one of the first regulators to propose rules for AI. Again, the proposed rules demand trading houses, and money managers evaluate whether their use of AI poses a conflict of interest – whether the technology is used in the best interests of the clients or to maximize profits at the expense of clients.
Gensler’s view faces push-back
Not all agree with Gensler’s views. Mark Perlow, a partner at the law firm Dechert, believes Gensler is “trying to regulate on theory” as the problems he identifies are mostly speculative currently. However, as seen in the case of cryptocurrency regulation, the industry may define the debate if regulators lag behind.
Beyond identifying the potential pitfalls, Gensler is considering using AI for market surveillance and how companies should disclose their use of AI. The issues raised by AI won’t be easily solved, Gensler warns, suggesting the future could bring a crisis involving machine learning.
AI and its far-reaching implications continue to create ripples across the financial sector and beyond. As AI investments are expected to grow to 2.5% to 4% of U.S. GDP in the long term, according to Goldman Sachs, it remains to be seen how the regulatory landscape will evolve to accommodate this new technology. With the SEC under Gensler’s leadership taking a proactive role, these discussions will shape the financial industry’s future.
文章来源于互联网:AI, not crypto, is the next frontier for financial regulation, says SEC Chair Gary Gensler