Gary Gensler, Chairman of the US Securities and Exchange Commission (SEC), has issued a warning about the potential financial calamity that could be triggered by artificial intelligence (AI) within the next ten years. Gensler expresses concern about the widespread use of identical AI models by major financial institutions, which could lead to herd behavior and a chain reaction in the market. He predicts that a future financial crisis will be attributed to reliance on a single data aggregator or model. The finance industry has already embraced AI tools, but the regulatory system is ill-equipped to handle the rapid advancement of AI in finance. Gensler acknowledges the cross-regulatory challenge and emphasizes the need for appropriate rules and regulations to address the potential risks associated with AI in finance.
| Signal | Change | 10y horizon | Driving force |
|---|---|---|---|
| Warning of AI-triggered financial meltdown | From stable financial markets to potential crisis | Increased regulation and oversight of AI in finance | Fear of market instability and economic catastrophe |
| Herd behavior from identical AI models | Shift from diverse decision-making to uniform decisions | Stricter regulations on AI model usage in financial institutions | Concerns about market volatility and systemic risks |
| Reliance on limited AI models | More diverse and advanced AI models in use | Increased availability and variety of AI tools | Desire for more effective decision-making and risk management |
| AI tools in finance becoming more accessible | Widespread adoption of AI tools in finance industry | Greater integration of AI technology in financial services | Demand for efficiency, cost-effectiveness, and data analysis capabilities |
| Lack of regulatory framework for AI in finance | Need for regulatory framework to manage AI in finance | Establishment of cross-regulatory framework for AI oversight | Recognition of the potential risks and challenges posed by AI in finance |
| Challenges in regulating AI in finance | Evolving regulations to address AI in finance | Strengthened regulatory authority and collaboration across sectors | Difficulty in adapting existing regulations to new technological advancements |