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Regulators gotta figure out how to deal with the risks that come with all this AI power. The Chair of the US Securities and Exchange Commission is urging them to act fast, because if they don’t, we’re looking at a financial crisis caused by AI within the next ten years.
This is no easy task, my friends. See, the thing is, our current regulations are focused on individual institutions, like banks and money market funds. But AI ain’t so easy to pin down. It’s spread across different institutions, relying on the same models and data. It’s a horizontal challenge, and it’s gonna take some serious effort to tackle it.
The SEC did propose a rule to address conflicts of interest in predictive data analytics, but it only covered individual models used by broker dealers and investment advisers. That’s not gonna cut it. We need to get to the heart of the issue. We got these big tech companies sitting on these base models that everyone’s relying on. And let me ask you, how many cloud providers do we have in this country that offer AI as a service? It’s a lot, my friend.
I’ve been raising these concerns everywhere I can, from the Financial Stability Board to the Financial Stability Oversight Council. This is a challenge that goes beyond a single regulatory body. It’s gonna take a coordinated effort to get it right.
And it’s not just the US that’s grappling with this. Regulators worldwide are trying to figure out how to police AI. The European Union is moving fast, drafting tough measures to regulate AI. Meanwhile, the US is in the midst of reviewing the technology to see what needs new regulation and what falls under existing laws.
Now, Wall Street has already embraced AI in many ways. We got robo advising, account opening processes, and brokerage apps all using AI. But here’s the thing that worries me: if everyone’s making decisions based on the same data model, we could see some serious herd behavior that’ll undermine financial stability. That’s how the next crisis could be unleashed.
I’m telling you, my friends, a financial crisis caused by AI is almost unavoidable. The economics of networks make it so. And I predict it could happen as soon as the late 2020s or early 2030s. That’s not too far away, folks.
Lawmakers and regulators in Washington are getting real serious about AI. They’re concerned about market stability, data protection, and antitrust issues. The Federal Trade Commission is even doing a review of OpenAI to look at consumer harm and data security. And you got antitrust agencies warning about tech monopolies due to AI’s dependence on scale.
Now, I’ve always been focused on concentration in capital markets to promote efficiency. But AI brings a whole new set of competition issues. Could it lead to more concentration of market makers? That’s a question we need to ask ourselves.
On another note, the SEC is finalizing a rule that requires public companies to disclose their direct emissions and emissions derived from energy they purchase. That’s gonna be a big step in tackling climate change. Now, I can’t comment on whether scope 3 disclosures will be included in the final version, but I promise you, we’re doing the right thing. We’re thinking it through and trying to bring some consistency to what’s already happening.
I know there’s been some backlash to these climate proposals. Republicans and attorneys-general are threatening to sue, saying we’re overstepping our authority. But let me tell you, my friends, we’re doing what’s necessary to protect the American public. We’re facing legal challenges left and right, but we’re not gonna back down.
So there you have it, folks. AI poses some serious risks to our financial stability, and we gotta take action. It’s gonna be a tough challenge, but I believe we can figure it out. Stay informed and stay vigilant. That’s the only way we can tackle this AI beast.