TLDR:
Janet Yellen, the Treasury Secretary, is set to deliver a speech highlighting the significant risks of using AI in finance while also acknowledging the tremendous opportunities it offers. Yellen will discuss how AI can improve efficiency, accuracy, and access to financial products, but also warn about the vulnerabilities and biases that can arise from the complexity and opacity of AI models. Despite the challenges, Yellen mentions that AI-powered tools can help broaden access to financial services and make them more affordable for consumers.
Full Article:
Treasury Secretary Janet Yellen is set to warn that using artificial intelligence (AI) in finance carries “significant risks” even as it benefits financial firms, according to excerpts of a speech she is expected to deliver Thursday. Yellen is set to speak at an AI conference held by the Financial Stability Oversight Council (FSOC) and the Brookings Institution, where she will acknowledge that AI “offers tremendous opportunities for the financial system” while outlining that AI-related risks are at the forefront of the regulatory council’s agenda. “For many years, the predictive capabilities of AI have supported forecasting and portfolio management,” Yellen says in the excerpts. “AI’s ability to detect anomalies has contributed to efforts to combat fraud and illicit finance. Many customer support services have been automated. Across these and many other use cases, we’ve seen that AI, when used appropriately, can improve efficiency, accuracy, and access to financial products.”
Yellen goes on to explain in her prepared remarks that if too many market participants rely on the same AI models and data, as well as cloud service providers, it could reinforce existing biases or create new ones that impact decision-making in financial markets. “Concentration among vendors developing models, providing data, and providing cloud services may also introduce risks, which could amplify existing third-party provider risks. And insufficient or faulty data could also perpetuate or introduce new biases in financial decision making,” she explains. Despite those challenges, she says that AI-powered tools can help to broaden access to financial services while making them more affordable for consumers.
Yellen says that there are concentration risks if too many financial market actors rely on the same AI models and data. The Internal Revenue Service is using AI for “enhanced fraud detection.” Financial regulators who make up the FSOC will continue to support efforts to build supervisory capacity to better understand associated risks through scenario analysis. Yellen emphasizes the importance of scenario analysis to help identify potential future vulnerabilities and enhance resilience in the face of rapidly evolving AI technology.
In conclusion, Janet Yellen’s speech underscores the dual nature of AI in finance—offering both significant risks and tremendous opportunities. While AI has the potential to improve efficiency and accessibility in financial services, it also poses challenges related to biases and data vulnerabilities. Yellen’s remarks highlight the importance of regulatory oversight and vigilance in managing the impacts of AI on the financial system.