News built for finance pros
CFO Brew helps finance pros navigate their roles with insights into risk management, compliance, and strategy through our newsletter, virtual events, and digital guides.
The rumors of SEC chair Gary Gensler’s resignation have been greatly exaggerated.
AI-generated text on a website falsely asserted that Gensler was resigning, leading to online rumors that alarmed his communications director, Gensler said during a July 17 speech on AI at the National Press Club.
The incident highlights one of the dangers of AI Gensler addressed in his speech. While he emphasized that his remarks represented his own opinion and he wasn't speaking on behalf of the SEC, they do shed light on the stance the regulator might take toward AI in the future. We’ll need new rules to address the technology, he said. Gensler mentioned some risks AI poses, including:
AI-enabled “herding” could harm the global financial system: Already highly networked, it could be vulnerable to the “herding” effect of AI, Gensler, co-author of a 2020 academic paper on the subject, warned. If too many individuals acted in similar ways based on recommendations from the same AI model, the ripple effects could be severe.
“AI may play a central role in the after-action reports of a future financial crisis,” Gensler said.
To prevent that from happening, regulators need to explore new policy solutions. Current risk management tools predate the AI and data analytics boom, and “will need to be updated,” Gensler said, but even then, such tools only apply to firm-wide or micro-level risks. We need “system-wide or macro-prudential policy interventions,” he warned.
AI could be a threat to fair competition: AI could give rise to a situation where a handful of tech companies dominate the marketplace, even more so than they do today, Gensler said. Companies are building apps atop the AI models owned by other companies, and in the process are feeding data into those models and making them smarter, perhaps giving the model owners a “greater competitive advantage.”
AI could lead to conflicts of interest: Brokers and advisers who use AI systems could face conflicts of interest if the AI systems they're using optimize for their own interests rather than investors, Gensler said. He’s asked the SEC to recommend proposals that would address such conflicts of interest.