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The SEC Shift Regulatory Focus from Crypto to AI

Gary Gensler said AI technology is the most transformative one so far and that the SEC should prepare for its effects on the financial markets.

The SEC is preparing for the market effects from AI technology.
Creator: Al Drago Credit: Bloomberg Copyright: © 2022 Bloomberg Finance LP

WASHINGTON D.C. – The Securities and Exchange Commission Chair Gary Gensler said that the watchdog has its eyes focused on another technology that has been swaying the financial markets: Artificial Intelligence. The SEC has been primarily concerned over cryptocurrencies for the past few years. However, according to Gensler, AI came into claim crypto's spot.

In an interview he gave to Bloomberg, Gensler stated:

“This [AI] is the most transformative technology of this generation. There’s a ‘there’ there—we can get to crypto later. We’re taking so much of what we humans do on a daily basis and automating it.”

The SEC is concerned about the effects of mass automation on the trade markets it oversees. AI is capable of giving investment advice and recommendations, which can fundamentally change how finance works. According to Gensler, this is a much more pressuring issue than cryptocurrencies. Because, unlike cryptocurrencies, AI can be used to disguise the guilty when there is a crime.

Gensler and AI

Gensler has a much longer history of being intrigued by AI than other members of the SEC. Gensler said he started thinking about AI in 1997 when the Russian chess player Garry Kasparov lost to IBM's chess-playing supercomputer, which is considered to be one of the first examples of AI.

In 2019, Gensler started teaching at MIT. This was when his interest in AI got rekindled. Gensler said he remembers meeting with Aleksander Madry, an MIT professor, who gave Gensler a book on the mathematics behind AI. In 2020, Gensler co-authored an academic article on AI and financial stability.

The paper focuses on how the existing regulations are insufficient to tame AI's implications on the financial system. It warns about the problem by stating:

“these models, whether intentionally or unintentionally, will coordinate and communicate with each other to better optimize their results,”

Therefore, eventually, these models will start executing some strategies that may be beyond human comprehension, leading to greater market volatility.



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