US SEC chief Gary Gensler raises concern of financial crisis due to AI: Report

According to the media report, Gensler reiterated his stance explored in a 2020 paper that he co-authored on deep learning and economic stability.

“A rapid advancement of technology could increase the uniformity and interconnected of financial systems, and make those systems harder to regulate,” he had said.

“This technology will be the center of future crisis, future financial crises,” Gensler said in an interview with Dealbook. “It has to do with this powerful set of economics around scale and networks.”

According to the media report, the SEC chairman explained that a small handful of artificial intelligence companies will provide the majority of tools that business and finance relies on.

Gensler added that the more centralized the broader system becomes, the more everyone depends on the same information, which can make a crash more likely. In July, Gensler made similar statements. He had said that AI is “most transformative technology of our time”, but it could promote herd-behavior encourage monocultures among investors. 

According to the report, Gensler also said that artificial intelligence models may put the priorities of companies ahead of the investors.

In July, the SEC had proposed a rule with an ultimate aim of avoiding the conflict of interest between companies and investors.

“You’re not supposed to put the adviser ahead of the investor, you’re not supposed to put the broker ahead of the investor,” Gensler said, adding that companies should be held responsible for safeguarding consumers from their own technology.

“Investment advisers under the law have a fiduciary duty, a duty of care, and a duty of loyalty to their clients,” said the report citing Gensler. “And whether you’re using an algorithm, you have that same duty of care.”

Updated: 09 Aug 2023, 07:46 PM IST