Yellen warns of “significant” AI risks to the financial system

Treasury Secretary Janet Yellen warned on Thursday that artificial intelligence (AI) could pose “significant risks” to the financial system.

The “complexity and opacity” of AI models, “inadequate” risk management frameworks and “interconnections” that arise from using the same data and models can create vulnerabilities, Yellen said at a conference on AI and financial stability.

Risks can also arise from concentration among vendors that develop models and provide data and cloud services, as well as from “insufficient or faulty data,” she added.

“The tremendous opportunities and significant risks associated with financial firms’ use of AI have pushed this issue to the top of Treasury and Financial Stability Oversight Board agendas,” Yellen said at the event co-hosted by the board and Brookings. Institution.

As part of her remarks, the Treasury Secretary announced plans to launch a formal public request for information on the “current uses, opportunities and risks of AI in the financial services sector.”

The Treasury Department’s Office of Federal Insurance also plans to hold a roundtable on the use of AI in the insurance industry, she said.

Like Yellen, Securities and Exchange Commission Chairman Gary Gensler has similarly warned about the risks that centralized AI could pose to the financial system.

In an informal conversation earlier this year, Gensler said he believes there will likely be only a handful of large core models and data aggregators, creating a “monoculture” with hundreds or thousands of financial players relying on the same data or model.

“Diversity of models and diversity of data sources; otherwise you end up with a pretty fragile system,” Gensler said at the time.

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