SEC Chair Warns AI Could Trigger Next Financial Crisis

Mukund Kapoor
By Mukund Kapoor - Author 3 Min Read
3 Min Read

Gary Gensler, the SEC chairman, warns that the rapid adoption of AI technology in the financial sector could lead to a financial crash within a decade. Calls for stricter regulations.

In Short
  • SEC Chairman Gary Gensler warns that AI use in finance could lead to a crisis by the early 2030s.
  • Gensler calls for a "cross-regulatory challenge" that addresses both AI models and their usage by banks.
  • Banks are actively using AI, but some like Goldman Sachs are also restricting its use internally.

October 17, 2023: The chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, has issued a warning that could make everyone sit up and take notice.

He said it’s “nearly unavoidable” that Artificial Intelligence (AI) will cause a financial crash in the late 2020s or early 2030s. He expressed his concerns in an interview with the Financial Times.

Gensler believes that the way Wall Street banks use AI models could spell trouble. He thinks that when the next financial crisis comes, people will point fingers at these AI models as the root cause.

“Aha! There was either one data aggregator or one model we’ve relied on. Maybe it’s in the mortgage market.

Maybe it’s in some sector of the equity market,” Gensler said.

He’s asking for rules that look at the AI models made by tech companies and also how these models are used by banks. This is what he calls a “cross-regulatory challenge.”

Gensler said fixing this issue is tough because the rules we have now are about one bank or one money fund at a time.

But many banks might be using the same AI model or the same data. So, we need rules that look at everything together, not just one by one.

Banks are very keen on using AI. For example, Morgan Stanley has a new AI assistant that uses OpenAI’s GPT4 to help financial advisers. It tells them about what’s happening in the markets.

Another big bank, JPMorgan, is working on its own AI model to help traders pick good investments. But some banks are also being careful.

Goldman Sachs, Deutsche Bank, and Bank of America have told their workers not to use ChatGPT at work.

So, it’s clear that while Wall Street is excited about AI, it’s also making the SEC worry.

They didn’t answer right away when people asked them to talk more about this. But what the SEC’s chair has said already could make us all think hard about how AI is changing money and banks.


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By Mukund Kapoor Author
Mukund Kapoor, the enthusiastic author and creator of GreatAIPrompts, is driven by his passion for all things AI. With a special knack for simplifying complex AI concepts, he's committed to helping readers of all levels - be it beginners or experts - navigate the intriguing world of artificial intelligence. Through GreatAIPrompts, Mukund ensures that readers always have access to the most recent and relevant AI news, tools, and insights. His dedication to quality, accuracy, and clarity is what sets his blog apart, making it a reliable go-to source for anyone interested in unlocking the potential of AI. For more information visit Author Bio.
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