David Lawder
WASHINGTON, – U.S. Treasury Secretary Janet Yellen warned that the exploit of artificial intelligence in finance could lower transaction costs but carries “significant risks,” according to excerpts from a speech to be delivered on Thursday.
In remarks delivered at the Financial Stability Oversight Council and the AI conference at the Brookings Institution, Yellen says AI risks are at the top of the regulatory board’s agenda.
“Specific vulnerabilities may arise from the complexity and opacity of AI models, inadequate risk management frameworks to address AI risks, and the linkages that emerge when multiple market participants rely on the same data and models,” Yellen says in excerpts.
It also notes that the concentration of vendors developing AI models and providing data and cloud services may also introduce risks that could augment existing risks associated with the external service provider.
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“And insufficient or erroneous data can also perpetuate or introduce modern biases in financial decision-making,” Yellen says.
However, remarks at the conference on artificial intelligence and financial stability show that Yellen sees the benefits of artificial intelligence in automating customer service services, improving efficiency, detecting fraud and combating illicit finance.
“For example, advances in natural language processing, image recognition and generative artificial intelligence are creating modern opportunities to make financial services cheaper and more accessible,” Yellen says in excerpts.
He adds that the Treasury Department also regularly communicates with financial regulators on their AI efforts, including the exploit of technology to mitigate risks associated with illicit financing, including money laundering, terrorist financing and sanctions evasion. She added that the Treasury is using artificial intelligence tools at the tax office to improve fraud detection.
The FSOC, which is led by the Treasury Department and includes the Federal Reserve and other major financial regulators, “will continue efforts to monitor the impact of artificial intelligence on financial stability, facilitate information sharing, and promote dialogue among financial regulators,” Yellen says .
The Board will also continue to support efforts to build supervisory capacity and exploit scenario analysis to better understand risks and opportunities.
“Given the speed at which AI technologies are evolving and the rapidly changing potential exploit cases for financial firms and market participants, scenario analysis can assist regulators and companies identify potential future vulnerabilities and inform what we can do to augment resilience,” Yellen says . (Reporting by David Lawder; Editing by Paul Simao)
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