SEC Chairman Sounds Alarm on Impending Banking Crisis Caused by AI

Gary Gensler, the Securities and Exchange Commission chairman, is warning that artificial intelligence could cause a “nearly unavoidable” financial crisis in the next decade unless regulators act.

He told the Financial Times that the issue lies in multiple entities relying on the same base algorithm or data aggregator, potentially leading to a herd mentality, The Hill reported Monday.

Gensler explained that tackling the problem could be difficult as most existing rules are specific to individual institutions or market funds rather than the entire sector.

The SEC proposed a rule in July that would restrict brokers and investment advisers from using predictive data analytics and similar technologies to advance their own interests above those of investors. Gensler acknowledged that the rule does not address the herd mentality problem at the root of a potential financial crisis.

In 2022, the agency awarded Washington, D.C.-based small business Analytica a seven-year indefinite-delivery/indefinite-quantity contract to back modernization efforts with AI, machine learning and natural language processing.