It is ‘nearly unavoidable’ that AI will cause a financial crash within a decade, SEC head says

SEC chairman Gary Gensler called for regulation to address the risk of AI in the financial marketsDrew Angerer/Getty Images

  • Gary Gensler told the Financial Times that the next financial crash could be sparked by AI.

  • The SEC chair called for regulation to address how AI models are being used by banks on Wall Street.

  • Banking has embraced AI, with Morgan Stanley rolling out a chatbot advisor based on OpeanAI’s GPT4.

The chair of the SEC has warned that AI could trigger a financial crisis, as Wall Street rushes to adopt the new technology.

Gary Gensler told the Financial Times that it was “nearly unavoidable” that AI would cause a financial crash as soon as the late 2020s or early 2030s, and said that reliance on models developed by tech companies could lead to economic chaos.

“I do think we will in the future have a financial crisis . . .[and] in the after action reports people will say ‘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,” he said.

Gensler called for AI regulation that addresses both the underlying AI models built by tech companies and how they are used by Wall Street banks, describing it as a “cross-regulatory challenge.”

“It’s a hard financial stability issue to address because most of our regulation is about individual institutions, individual banks, individual money market funds, individual brokers; it’s just in the nature of what we do,” he told the Financial Times.

“And this is about a horizontal [matter whereby] many institutions might be relying on the same underlying base model or underlying data aggregator.”

Wall Street banks have been enthusiastic adopters of generative AI since the splashy launch of ChatGPT last year.

Morgan Stanley launched an AI assistant based on OpenAI’s GPT4 model to help employees access market information last month. Rival JPMorgan, meanwhile, has reportedly filed a patent for an AI model known as ‘IndexGPT’ that would help traders choose securities to invest in.

However, banks have also cracked down on the use of ChatGPT even as they experiment with the new technology, with Goldman Sachs, Deutsche Bank, and Bank of America all banning employees from using the chatbot at work earlier this year.

The SEC did not immediately respond to a request for comment from Insider, made outside normal working hours.

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