Artificial Intelligence Pegged As Financial Risk By US Regulators

U.S. regulators have flagged artificial intelligence as a potential risk to the nation’s financial system, calling for increased supervision and monitoring of this rapidly progressing technology.

What Happened: The Financial Stability Oversight Council, under the leadership of Treasury Secretary Janet Yellen, underscored the risks linked with AI in its most recent annual financial stability report, reported Reuters. 

This is the first instance of the panel addressing the potential dangers of AI. 

The report stated that while AI could potentially enhance innovation and efficiency in the financial sector, it could also pose threats such as "cyber and model risks."

The council has recommended businesses and regulators bolster their expertise and ability to monitor AI innovation, usage, and emerging risks. It also cautioned about the likelihood of biased or inaccurate results if companies and their regulators do not thoroughly understand AI tools.

In addition, the report flagged the risks associated with large external datasets and third-party vendors, which AI tools often depend on, citing privacy and cybersecurity issues. 

The panel also expressed the need for ongoing efforts to evaluate risks associated with climate change and the escalating role of nonbanks and private credit.

See Also: Is Dropbox Sharing Your Data With OpenAI? Here’s How To Keep It Safe

Why It Matters: The concerns voiced by the council echo those of AI experts such as Stuart Russell, a well-respected AI and machine learning expert.  

Earlier this year, in an interview, Russell expressed his apprehension over the potential hazards of unchecked AI development – thoughts that prominent people like Elon Musk and Steve Wozniak have shared. 

Meanwhile, the Securities and Exchange Commission or SEC, along with other regulators, has been investigating the use of AI by firms, following the executive order from the White House to minimize AI risk.

The executive order by President Joe Biden came as financial firms and banks started adopting AI-based systems not only to make daily work easier for employees but also to make informed, safer, and profitable loan and credit decisions. 

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This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.