Yellen warns of AI risks in finance

US Treasury Secretary Janet Yellen reported that while artificial intelligence offers significant opportunities, such as making financial services less costly and easier to access, it also brings significant risks. Yellen spoke at the Artificial Intelligence and Financial Stability Conference organized by the Financial Stability Oversight Council (FSOC) with the Brookings Institution. Drawing attention to the fact that artificial intelligence is a subject that the Department and FSOC member organizations take very seriously, Yellen emphasized that it will become even more important in the coming years. Yellen pointed out that artificial intelligence offers tremendous opportunities for the financial system and used the following statements: "The financial services sector has long been benefiting from these opportunities. For many years, the predictive capabilities of artificial intelligence have supported forecasting and portfolio management. The ability of artificial intelligence to detect anomalies has contributed to efforts to combat fraud and illicit financing. Many customer support services have been automated. In these and many other use cases, we have seen that when used appropriately, artificial intelligence can improve efficiency, accuracy, and access to financial products." Emphasizing that developments in artificial intelligence have also created new opportunities to make financial services less costly and easier to access, Yellen said, however, the use of artificial intelligence by financial institutions brings risks as well as opportunities. "Certain vulnerabilities may arise due to the complexity and lack of transparency of artificial intelligence models, the inadequacy of risk management frameworks that account for AI risks, and the connections resulting from the reliance of many market participants on the same data and models," Yellen said. In addition, Yellen stated that the concentration among suppliers who develop AI models and provide data and cloud services may increase existing third-party service provider risks, and noted that insufficient or inaccurate data may also perpetuate or reveal new biases in the financial decision-making process. “Our work in artificial intelligence must continue” Yellen touched on the work of the US government and the Treasury in this area, saying that these studies must continue to develop. Stating that they continue to engage with stakeholders to develop the understanding of artificial intelligence in financial services, Yellen reminded that today they requested opinions from financial institutions, consumers, advocates, academics and other stakeholders on the uses, opportunities and risks of artificial intelligence in the financial services sector. Yellen added that the FSOC will also continue its efforts to monitor the impact of artificial intelligence on financial stability, facilitate the exchange of information and encourage dialogue among financial regulators.