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Treasury Secretary Janet Yellen is expected to warn that the use of artificial intelligence (AI) in finance can benefit financial institutions but also poses “significant risks”, according to excerpts of a speech she is due to deliver on Thursday.
Yellen is scheduled to speak at an AI conference hosted by the Financial Stability Oversight Council (FSOC) and the Brookings Institution, where she is expected to acknowledge that AI “presents enormous opportunities for the financial system” and say that AI-related risks are at the forefront of the regulator’s agenda.
“For many years, AI’s predictive capabilities have supported forecasting and portfolio management,” Yellen said in the excerpt. “AI’s anomaly detection capabilities have contributed to efforts to fight fraud and illicit funds. Many customer support services have been automated. In these and many other use cases, we know that AI, when used properly, can improve efficiency, accuracy, and access to financial products.”
“Particular vulnerabilities may arise due to the complexity and opacity of AI models, the inadequacy of risk management frameworks that take AI risks into account, and the interconnectedness that arises as many market participants rely on the same data and models,” she said.
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Treasury Secretary Janet Yellen is due to deliver a speech warning of the perils as well as the benefits of AI in finance. (Drew Ungerer/AFP via Getty Images/Getty Images)
In her prepared remarks, Yellen said too many market participants were relying on the same policies. AI Models and Dataas well as cloud service providers, may reinforce existing biases or create new ones that influence decision-making in financial markets.
“Concentration across vendors developing models, providing data and delivering cloud services also introduces risks and can amplify risks from existing third-party providers. Insufficient or incomplete data can also perpetuate new biases or introduce biases into financial decision-making,” she explains.
Despite these challenges, she says, AI-powered tools can make financial services more accessible and convenient. Affordable for consumers.
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Yellen said concentration risks arise when too many financial market participants rely on the same AI models or data. (Alex Wong/Getty Images/Getty Images)
“For example, advances in natural language processing, image recognition, and generative AI create new opportunities to make financial services cheaper and more accessible,” Yellen said in the excerpt, noting that the IRS is also using AI for “enhanced fraud detection.”
Yellen says: Financial Regulators Led by the Treasury Department and including regulators such as the Federal Reserve, FSOC members said they “also continue to support efforts to build supervisory capacity to better understand relevant risks,” including through the use of scenario analysis.
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Yellen said AI is a top priority for financial regulators. (Drew Ungerer/Getty Images/Getty Images)
“Scenario analysis, which companies and governments often use to understand opportunities and risks in uncertain situations, could also be beneficial,” she said in the excerpt. “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 companies identify potential future vulnerabilities and inform what they can do to become more resilient.”
FOX Business’ Edward Lawrence and Reuters contributed to this report.
