David Loader
WASHINGTON (Reuters) – U.S. Treasury Secretary Janet Yellen is expected to warn that the use of artificial intelligence in finance has the potential to lower transaction costs but also carries “significant risks”, according to excerpts of a speech due to be delivered on Thursday.
Speaking at the Financial Stability Oversight Council and the Brookings Institution's AI conference, Yellen said AI-related risks have risen to the top of the regulatory council's agenda.
“Particular vulnerabilities may arise from the complexity and opacity of AI models, inadequate risk management frameworks that take AI risks into account, and the interconnectedness that arises from many market participants relying on the same data and models,” Yellen said in the excerpt.
It also noted that concentration among vendors developing AI models and providing data and cloud services could create risks that amplify the risks for existing third-party service providers.
“Insufficient or inaccurate data can perpetuate or introduce new biases in financial decision-making,” Yellen said.
But Yellen's remarks at the conference on AI and financial stability suggested she recognized the benefits of AI in automating customer support services, improving efficiency, detecting fraud and rooting out illicit funds.
“For example, advances in natural language processing, image recognition, and generative AI create new opportunities to reduce the cost and make financial services easier to access,” Yellen said in the excerpt.
She added that the Treasury Department is in regular contact with financial regulators on AI-related efforts, including leveraging the technology to mitigate illicit financial risks such as money laundering, terrorist financing and sanctions evasion. The Treasury Department is using AI tools at the Internal Revenue Service to enhance fraud detection, she added.
Led by the Treasury Department and involving the Federal Reserve and other key financial regulators, the FSOC “will continue its efforts to monitor the impacts of AI on financial stability, facilitate the exchange of information, and foster dialogue among financial regulators,” Yellen said.
The Council will also continue to support efforts to build oversight capacity and use scenario analysis to better understand risks and opportunities.
“Given the rapid development of AI technologies and the rapidly evolving potential use cases for financial institutions and market participants, scenario analysis could help regulators and firms identify potential future vulnerabilities and inform what they can do to become more resilient,” Yellen said.
(Reporting by David Lauder and Paul Simao Editing)
