The rise of artificial intelligence technology may be the cause of a financial catastrophe in the years to come.
That is according to Gary Gensler, Chair of the United States Securities and Exchange Commission (SEC). In an interview Tuesday with POLITICO Tech, he said that large financial institutions relying on a small set of AI algorithms for investment decisions could create potentially disastrous vulnerabilities that regulators might miss.
The SEC and other regulatory organizations are currently examining the implications of artificial intelligence systems that can make decisions on their own. Trillions of dollars being partially overseen by AI is a contemporary concern never previously dealt with.
Gensler says machine learning systems can make judgement errors or generate inaccurate information, which could wreak havoc on a large scale. “I would be quite surprised if in the next 10 or 20 years a financial crisis happens and there wasn’t somewhere in the mix some overreliance on one single data set or single base model somewhere,” he said.
The SEC is working to establish regulations on how investment advisors and brokers use AI and predictive data analytics when dealing with clients. Gensler says AI must prioritize the interests of clients above all.
“There could be inherent conflicts if the investment robo-advisor was skewing the advice they give you because they’re optimizing for the profits or revenues or other interests of the firm,” he said.
Gurbir is right, if you claim to use AI in your investment processes, you must ensure that your representations aren’t false and they aren’t misleading.
My thoughts on AI washing 📽️ ⬇️ https://t.co/v4Dxm1t9xj pic.twitter.com/ntmRuWHsI3
— Gary Gensler (@GaryGensler) March 18, 2024
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SEC fines investment advisors over false AI claims
Gensler’s government agency recently charged two companies an aggregate US$400,000 for making false and misleading claims. The SEC described their actions as “AI washing.”
Between 2019 and last year, Toronto’s Delphia was found to be guilty of completing inaccurate SEC filings and presenting false information to the public on its website and via a news release.
Furthermore, San Francisco’s Global Predictions was found to have presented misleading claims about AI during 2023 through its social media platforms and website.
“We’ve seen time and again that when new technologies come along they can create buzz from investors as well as false claims by those purporting to use those new technologies,” Gensler said in an SEC news release.
rowan@mugglehead.com
