devxlogo

Yellen warns of significant AI risks in finance

Yellen warns of significant AI risks in finance

AI Risks

Treasury Secretary Janet Yellen plans to warn about the “significant risks” of using artificial intelligence in finance. She will deliver this message at a conference hosted by the Financial Stability Oversight Council and the Brookings Institution on Thursday. In her prepared remarks, Yellen acknowledges that AI offers “tremendous opportunities for the financial system.” She notes that AI has been used for forecasting, portfolio management, fraud detection, and customer support.

Yellen says that “when used appropriately,” AI can “improve efficiency, accuracy, and access to financial products.”

However, Yellen also highlights specific risks associated with AI. These include the complexity and opacity of AI models, inadequate risk management frameworks, and the reliance on the same data and models by multiple market participants. She warns that these could reinforce existing biases or create new ones that impact decision-making in financial markets.

Yellen argues that AI-powered tools can broaden access to financial services, making them more affordable for consumers.

Significant risks of AI in finance

She mentions that the Internal Revenue Service is already using AI for “enhanced fraud detection.”

Financial regulators, including the FSOC and the Federal Reserve, will continue to build supervisory capacity to better understand the associated risks.

Yellen says that “scenario analysis could help regulators and firms identify potential future vulnerabilities and inform what we can do to enhance resilience.”

The U.S. Treasury Department announced on Thursday that it is seeking public comments on the use of AI in the financial services sector. The agency aims to improve its understanding of the opportunities and risks associated with the development and application of AI within the sector. Regulators have cautioned that the rapid adoption of AI could create new risks for the U.S. financial system if the technology is not adequately monitored.

See also  Leaked designs hint at unique iPhone 16 features

The Treasury Department is interested in inputs from a broad range of stakeholders, particularly on how AI innovations could promote inclusive and equitable access to financial services. As AI continues to evolve rapidly, Yellen emphasizes the need for regulatory vigilance to ensure financial stability while leveraging AI’s potential benefits. The public has been encouraged to submit their comments within 60 days.

devxblackblue

About Our Editorial Process

At DevX, we’re dedicated to tech entrepreneurship. Our team closely follows industry shifts, new products, AI breakthroughs, technology trends, and funding announcements. Articles undergo thorough editing to ensure accuracy and clarity, reflecting DevX’s style and supporting entrepreneurs in the tech sphere.

See our full editorial policy.

About Our Journalist