The use of artificial intelligence (AI) by financial firms could pose a “systemic risk” and set off a financial crisis, Gary Gensler, chair of the U.S. Securities and Exchange Commission, told a Wall Street conference in a 16 May speech. 

Data compilers and AI could heighten markets “fragility,” he warned. 

He imagined historians looking back and saying “the crisis in 2027 was because everything was relying on…generative AI…and a bunch of financial technology apps [that] are built on it.” 

The financial industry has rushed to embrace AI, most commonly in the form of ChatGPT and its newer incarnations. 

“You have to understand how risk management is managed,” he emphasized, citing the chance that AI might make biased decisions. 

Proponents say AI designs can screen out biases. However, Gensler and others have warned that the systems can amplify even slight biases lurking in their structure or in the data used to train them. 

Regulators already have pledged to investigate the possibility of AI bias in areas of hiring, housing, and lending.   

Banks and other firms employ AI to vet new customers and scan for suspicious transactions. 

TRENDPOST: Because the power and reach of AI is far from predictable, Gensler and others are hoping to rein back the boundless enthusiasm that some proponents have expressed for letting AI “go where it goes.” 

TREND FORECAST: If past technological innovations are a guide, regulations will be debated in general terms until AI creates a crisis or does something that sparks public outrage. 

At that point, politicians and regulators will impose regulations that address that kind of instance, then do the same when another kind of instance crops up. 

Regulations around AI will proceed piecemeal for two reasons. 

The first is that AI is so far-reaching and overwhelming in its implications that it is not yet possible to design a regulatory structure that covers general and specific instances. 

The second is that business, financial, and ideological interests will fight regulation on every front, limiting the reach of rules until necessity forces those interests to give way, one step at a time.