AI will be at the center of the next financial crisis, SEC chief Gary Gensler says

  • SEC chief Gary Gensler told Dealbook that AI increases the risk of future financial crashes.
  • He says a handful of dominant AI models will increase concentration, thereby raises the risk of a crisis.
  • “This technology will be the center of future crises, future financial crises,” he said.

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Gary Gensler, the chairman of the Securities and Exchange Commission, told Dealbook on Monday that artificial intelligence increases the risk of a financial crisis.

He reiterated a stance he explored in a 2020 paper he co-authored on deep learning and economic stability, noting that a rapid advancement of technology could increase the uniformity and interconnected of financial systems, and make those systems harder to regulate.

“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.”

A small handful of AI companies, he explained, will provide the majority of tools that business and finance relies on. The more centralized the broader system becomes, the more everyone depends on the same information — which makes a crash more likely.

He made similar comments in a July speech, saying that even though AI is “most transformative technology of our time,” it could promote herd-behavior encourage monocultures among investors

With AI increasing financial interconnectedness, heightened risk in just a single sector could spread wildly. The circumstances “may position deep learning as a central actor in the after-action reports of the crisis of 2027 or 2037,” Gensler wrote in the 2020 study.

Gensler also told Dealbook that AI models may put the priorities of companies ahead of investors’. He questions whether companies will publicize their findings before first acting on them themselves. The SEC proposed a rule in July to address exactly this, with the ultimate aim of avoiding this conflict of interest.

“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 told Dealbook. He added that firms should be held responsible for safeguarding consumers from their own tech.

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

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Phil Rosen