Gensler also mentioned a proposed SEC rule to prohibit securitization participants from engaging in transactions that could incentivize them to prioritize their interests over those of asset-backed security investors. This proposal has faced criticism from the financial industry, with some arguing it would hinder ordinary business activities, including risk-mitigating trades. Gensler, however, maintains a "technology-neutral" stance, emphasizing the need to address potential conflicts of interest, regardless of whether machine learning or other data analytics are used.
Key takeaways:
- Gary Gensler, chairman of the Securities and Exchange Commission, warned that over-reliance on artificial intelligence in financial firms could pose a systemic risk and potentially cause a financial crisis.
- Gensler acknowledged that AI has positive outcomes such as market efficiency and regulatory compliance, but also pointed out risks, including conflicts in the markets and over-reliance on a single model.
- The SEC has proposed a conflict of interest rule, which has been heavily criticized by the financial industry, as it could potentially limit firms' ability to engage in risk-mitigating trades and hedging.
- Gensler's interest in AI and its impact on financial stability predates his term at the SEC, having co-authored a paper on the subject in 2020 while at the Massachusetts Institute of Technology Sloan School of Management.