(The Epoch Times)—Securities and Exchange Commission (SEC) Chair Gary Gensler warned that a centralized artificial intelligence (AI) could produce a “fragile” financial system.
Speaking at a virtual discussion hosted by non-profit consumer rights advocacy group Public Citizen, Mr. Gensler again sounded the alarm over the growth and centralization of AI, asserting that it could be similar to today’s search engine and cloud services where only a handful of companies are dominating the market.
One of America’s top financial regulators highlighted that current developments could lead to a “monoculture,” with thousands of financial actors depending on central data or a single platform.
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“Count up on the fingers of one hand how many cloud providers we have in the U.S., and in even fewer fingers on the hand how many platforms we have to do search, dominant search in this world,” he said on Jan. 17. “I believe it is likely inevitable that we will have, measured on the fingers of one hand, if not two or three, large base models, and separately the data aggregators.”
Today, Google accounts for 88 percent of the search engine market, followed by Bing (8 percent) and Yahoo! (2 percent). Only four companies account for about two-thirds of the world’s cloud infrastructure: Amazon (32 percent), Microsoft (20 percent), Google (9 percent), and Alibaba Cloud (6 percent).
He conceded that the SEC and other U.S. financial regulations do not possess the oversight over “central nodes” that the finance sector would be dependent on for information.
Mr. Gensler emphasized the need for a diversified system. If not, the financial system would become “pretty fragile.”
“And if those nodes have it wrong, the monoculture goes one way, well, then there’s a risk in this society and the financial sector at large,” he added. “Diversity of models and diversity of data sources. Otherwise, you end up with a pretty fragile system.”
This is not the first time Mr. Gensler has warned about the dangers of AI and the threats posed.
‘Risk in the Whole System’
Artificial intelligence has become one of the most ubiquitous terms in financial markets.
FactSet data noted that nearly 200 S&P 500 companies cited AI during their second-quarter earnings calls, although this slipped in the third quarter.
However, the prevalence of AI has Mr. Gensler fearing that the financial markets could endure another dot-com bubble of the late 1990s as companies hype AI and then proceed to overpromise and mislead to catch investors’ attention.
“One shouldn’t greenwash, and one shouldn’t AI-wash,” he said at a December conference hosted by The Messenger, referencing the informal term that illustrates firms’ unfounded AI claims to the public.
But many of the worries shared by Mr. Gensler return to the idea of a “monoculture” as financial markets rely on very few models to make what they perceive to be sound investment decisions based on limited data. But while AI could revolutionize the economy, it could also dramatically transform how traders invest by exploiting massive data sets for predictive capabilities.
“A growing issue is that [AI] could lead to a risk in the whole system,” Mr. Gensler told MarketWatch this past fall. “As many financial actors rely on one or just two or three models in the middle, you create a monoculture; you create herding.”
In October, Mr. Gensler was blunt in an interview with the Financial Times, arguing that it is “nearly unavoidable” that AI would ignite a financial crisis within a decade.
“I do think we will in the future have a financial crisis,“ he told the newspaper. ”In the after-action reports, people will say ‘Aha! There was either one data aggregator or one model we’ve relied on.’ Maybe it’s in the mortgage market. Maybe it’s in some sector of the equity market.”
Consumer Watchdog published a report on Jan. 11 titled “Hallucinating Risk,” sounding the alarm that the subsequent economic collapse could be caused by artificial intelligence.
“Absent proper regulation, the next financial crisis could be caused by AI,” said Justin Kloczko, tech advocate for Consumer Watchdog, in a statement. “A recession could ignite in the housing or equity market due to a handful of powerful banks relying on a couple of biased algorithms.”
Financial regulators are looking at how AI could trigger a financial calamity. But economists, market analysts, and policymakers are assessing how it could transform the global economy.
The International Monetary Fund (IMF) forecast that about 40 percent of jobs worldwide would be impacted by AI, something that could exacerbate inequality.
“In most scenarios, AI will likely worsen overall inequality, a troubling trend that policymakers must proactively address to prevent the technology from further stoking social tensions,” said IMF director Kristalina Georgieva in a Jan. 14 blog post.
In advanced economies, as much as 60 percent of jobs could be affected by AI, with many of them disappearing.
“For the other half, AI applications may execute key tasks currently performed by humans, which could lower labour demand, leading to lower wages and reduced hiring,” Ms. Georgieva wrote.
Regardless of the tidal wave of warnings and concerns, the international economy is ebullient over AI.
This past fall, technology research and advisory firm IDC forecast that corporate spending on generative AI infrastructure, services, and software will climb to $143 billion in 2027, up from $16 billion in 2023. The group also projected in late 2022 that worldwide spending on AI systems would exceed $300 billion by 2026.