Artificial intelligence (AI) could pose a risk to financial market stability by prompting hoards of investors toward the same stocks, America’s financial watchdog has warned.
Securities and Exchange Commission (SEC) chairman Gary Gensler argued dominance in the AI sector could ultimately restrict the range of models and data firms use for information.
This could prompt similar events to the 2008 financial crisis or Silicon Valley Bank’s Twitter-fuelled bank run, he suggested, given the dominance of certain specific information offered to investors.
“AI may heighten financial fragility,” he said in a speech in Washington on Monday, “it could promote herding with individual actors making similar decisions because they are getting the same signal from a base model or data aggregator.”
“Monocultures” could be created as a result, threatening to “exacerbate the inherent network interconnectedness of the global financial system”, he continued.
“Thus, AI may play a central role in the after-action reports of a future financial crisis.”
Given AI’s already firm setting in the global financial sector, with the likes of creditors and insurers using the technology to sift through data, Gensler pointed out tougher regulation was required.
“We’re dealing with automation of human intelligence, the gravity of these challenges is real,” he added.
“We’re focused on protecting against both […] micro and macro challenges.”