Treasury Secretary Janet Yellen said today that artificial intelligence technologies pose “significant risks” to financial markets that include biased decision-making yet also offer “tremendous opportunities” to lower costs and improve access to financial products.
In a speech at a conference on AI and financial stability, Yellen said the growing use of AI by financial institutions introduces vulnerabilities arising “from the complexity and opacity of AI models, inadequate risk management frameworks to account for AI risks, and interconnections that emerge as many market participants rely on the same data and models.”
Yellen also targeted “concentration among vendors developing (AI) models,” saying that if these vendors also provide cloud services, it may bring risks “which could amplify existing third party service provider risks.”
The secretary did not specify AI’s potential risks, other than to say the technology’s use of “insufficient or faulty data could also perpetuate or introduce new biases in financial decision making.”
But Yellen balanced her brief remarks by also hailing the “tremendous opportunities” AI offers the financial system, including advanced predictive capabilities that support financial forecasting and help detect fraud and illicit financial transactions.
“We’ve seen that AI, when used appropriately, can improve efficiency, accuracy, and access to financial products,” Yellen said at the conference, sponsored by The Financial Stability Oversight Council (FSOC) and the Brookings Institution. “Advances in natural language processing, image recognition, and generative AI, for example, create new opportunities to make financial services less costly and easier to access.”
Yellen’s comments constituted the latest step in a series of Treasury actions aimed at determining the effects of AI on the U.S. financial system, for good and potentially ill.
Before she spoke, the department released a request for information on the “Uses, Opportunities, and Risks” of AI in the financial services sector.
The request, which asks members of the public to submit comments within 60 days, is aimed at boosting Treasury’s understanding of “how AI is being used within the financial services sector and the opportunities and risks presented by developments and applications of AI within the sector, including potential obstacles for facilitating responsible use of AI within financial institutions,” the department said.
In a 2022 report to the White House Competition Council, Treasury also explored the opportunities and risks of AI in the financial sector. The report found that innovations in AI and machine learning (ML) technologies “are powering many non-bank firms’ capabilities and product and service offerings,” leading to “an unprecedented demand for consumer data.”
“This poses new data privacy and security risks,” said the report, which also found that use of AI may help expand the provision of financial products and services to consumers, particularly in the credit space.
In March, Treasury tackled AI and cybersecurity, outlining “a series of next steps to address AI-related operational risk, cybersecurity, and fraud challenges,” in response to the Biden administration’s AI executive order (EO).
Concluding her speech, Yellen said determining AI’s ultimate impact on the financial sector is a topic Treasury and the rest of the administration “take very seriously,” one that “will only become more important in the years ahead.”
“This is a rapidly evolving field,” she said. “We have our work cut out for us.”