AI could be the next big systemic risk to financial system

Artificial intelligence is an exciting and fast-changing technology. The recent proliferation of generative AI tools like ChatGPT has demonstrated that the technology is set to transform business and society. AI is rapidly changing the financial system, and it has the potential to create new systemic risks.

Gary Gensler, the chairman of the SEC, has spoken on the potential consequences of artificial intelligence for years. The recent proliferation of generative AI tools like ChatGPT has demonstrated that the technology is set to transform business and society.

Employers started using computers and AI to spy on their workers without their consent. This technology will be the centre of future crises, future financial crises. It has to do with this powerful set of economics around scale and networks.

AI-powered trading algorithms are increasingly being used by financial institutions. These algorithms are often complex and difficult to understand, which makes them vulnerable to cyberattacks. If a cyberattack were to successfully disrupt or disable an AI-powered trading algorithm, it could cause a ripple effect throughout the financial system.

AI models are trained on data, and if the data is biased, the model will be biased as well. This could lead to AI-powered trading algorithms making decisions that are unfair or discriminatory. For example, an AI model that is trained on data that shows that men are more likely to be successful investors than women could end up making investment decisions that discriminate against women.

If a few large financial institutions start using AI-powered trading algorithms, it could lead to other financial institutions following suit. This could create a situation where all of the financial institutions are using the same AI models to make trading decisions. If something were to go wrong with one of the models, it could have a cascading effect on the entire financial system.

Going forward, the regulators need to take steps to ensure that AI is used safely and responsibly in the financial system.