Despite being pleased with artificial intelligence technology, Gensler discussed its possible conflicts of interest and biases.
Gary Gensler, the regularly besieged United States Securities and Exchange Commission (SEC) chair, again cautioned about artificial intelligence (AI) and how its quick progress could impact financial markets.
Comply with Securities Regulations to Safeguard the Public
During the ‘Balancing Innovation & Regulation’ artificial intelligence event in Washington, D.C., he said greenwashing and AI washing were unnecessary. In case one is generating funds from the public or providing and selling securities, they must comply with securities regulations and offer fair, complete, and honest disclosure.
Greenwashing entails making fasle or overstated assertions regarding social, environmental, and governance practices, or ESG, to improve a project’s attractiveness. Earlier, the Securities and Exchange Commission cautioned that greenwashing might confuse investors regarding an asset’s real risks, pricing, and rewards.
Gensler Warns AI Evolving to Create Distraction in Markets
Gensler claimed the excitement associated with artificial intelligence is transforming the technology into the same distraction. Further, he said they are concerned about manipulating the markets and fraud in this macro problem. He also said the matter requires serious talks among financial regulators globally.
Despite generative AI’s ability to imitate a person’s writing style and speech patterns with astounding intricacy, Gensler stressed that an individual is behind the machine. This machine is responsible for financial crimes carried out by the chatbot.
Gensler said that fraud is a fraud, and if a person is utilizing a model that has deceived the public, they, based on the facts, will possibly hear from the firm. Currently, AI still holds humans in the loop. Slightly teasingly, Gensler admitted that the involvement of humans might not always be the case.
SEC Ready to Hold Human Actors Accountable for AI-Powered Actions
Gensler said he did not know when they got to the Sarah Connor era and cited the famous character played by Linda Hamilton in the Terminator film franchise. However, there are those placing that artificial intelligence model in place and establishing hyperparameters. Hence, there are still people who are accountable for that artificial intelligence.
Gensler directed attention to the dangers of utilizing artificial intelligence in finance, highlighting the opportunity for developers to incorporate conflicts of interest and individual biases in their training data.
Gensler also focused on the risks of counting on centralized or uniform datasets, which he warned would result in market uncertainty owing to the absence of diversity in decision-making. He said that if one has vast parts of the market depending on a single dataset, the hurting impact could result in less success.
Despite the rise in the number of artificial intelligence developers and considerable investments, Gensler claimed that people will finally see less fragmented data as the number of artificial intelligence models is cut down to three major players. He also said that this essentially happens in a technology’s early stages.
As such, network economics might result in three major models or foundations that most people depend on. Building the big models is difficult for a community bank, a fintech startup, and a smaller asset manager since one must rely on another person’s model.
Deepfakes Pose Huge Risk to Markets
Three months ago, Gensler included his name in the expanding list of government officials focusing on the adverse effects of generative AI. In particular, the officials are focusing on artificial intelligence-created deepfakes.
Gensler appeared before the Senate Banking Committee and cautioned that artificial intelligence deepfakes are dangerous to financial markets. He cited an example of an artificial intelligence deepfake that tried to mimic the United States Stock Market.
Gensler said that despite appropriate regulations, the new technologies will combat them. Utilizing artificial intelligence and doing deepfakes presents some risks to the markets.
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