SEC Chair Gary Gensler Shifts Focus from Cryptocurrency to AI

The chairman of the US Securities and Exchange Commission (SEC), Gary Gensler, has announced a change in focus from cryptocurrency to artificial intelligence (AI). Gensler believes that AI is the technology that “warrants the hype” and deserves greater attention from regulators.

Gensler’s Interest in AI

• Gensler became interested in AI in 1997 after witnessing Russian chess grandmaster Garry Kasparov’s loss to IBM’s supercomputer, Deep Blue.
• As an MIT professor, Gensler delved deeper into the study of AI, co-authoring a significant paper in 2020 that highlighted the risks posed by deep learning in the financial system.

Risks and Benefits of AI in Finance

• Gensler believes that while AI can bring immense benefits to financial firms and their clients through enhanced predictive capabilities, it also carries significant risks that need to be addressed.
• One of Gensler’s key concerns is the potential use of AI to obscure responsibility and accountability when things go wrong.
• Coordinating AI models among major trading houses could lead to increased market volatility and instability, which current regulatory regimes might not be equipped to manage.

Regulatory Framework for AI in Finance

• Gensler has proposed one of the first regulatory frameworks for AI in the finance industry.
• His proposal requires trading houses and money managers to carefully evaluate their use of AI and predictive data to identify any conflicts of interest.
• The framework aims to address situations where the interests of clients clash with company profits.

SEC’s Continued Crackdown on Cryptocurrencies

Despite the shift in focus to AI, the SEC under Gensler’s leadership remains committed to cracking down on cryptocurrencies.

• The SEC has actively pursued legal action against major crypto firms like Ripple, Binance, and Coinbase.
• Several lawsuits are currently pending, indicating the SEC’s determination to enforce actions against cryptocurrency companies engaged in scams and fraudulent activities.

Striking a Balance with AI

Gensler’s emphasis on AI comes at a crucial time when the technology is making rapid strides in automating various financial processes.

• While AI holds tremendous promise, its unchecked growth could also lead to unforeseen challenges.
• By directing the SEC’s attention towards AI, Gensler aims to strike a balance between promoting innovation and safeguarding market integrity and investor interests.

(Photo by Petri Heiskanen on Unsplash)