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News » U.S. flags AI as emerging risk to financial stability

U.S. flags AI as emerging risk to financial stability

FSOC recommended authorities “deepen expertise and capacity” to oversee AI applications properly. (Image of U.S. Treasury Building from GetArchive)

WASHINGTON, D.C., UNITED STATES — American financial regulators have warned for the first time that the rapid adoption of artificial intelligence (AI) in the financial sector poses risks to stability that require oversight.

In its 2023 annual report, the Financial Stability Oversight Council (FSOC) stated that while AI promises benefits like efficiency and performance gains, its growing use in finance is a “vulnerability” needing monitoring. 

FSOC chair and Treasury Secretary Janet Yellen affirmed the council’s role in tracking emerging innovations for attendant risks.

“Supporting responsible innovation in this area can allow the financial system to reap benefits like increased efficiency, but there are also existing principles and rules for risk management that should be applied,” Yellen said.

Though acknowledging AI’s upside, the report cautioned that it could also introduce cyber, model, and other safety and soundness risks. It advised regulators to adapt oversight mechanisms to account for the risks while enabling progress. 

FSOC further recommended authorities “deepen expertise and capacity” to oversee AI applications properly.

The designation comes shortly after U.S. President Joe Biden ordered a government-wide AI safety review in October over concerns about national security and discrimination. 

It signals U.S. authorities plan measured oversight even as financial services rapidly adopt AI. 

Previously, the European Union reached a provisional agreement on legislation regulating the development and use of AI systems across its 27 member states. This will require AI developers to disclose data used to train their systems and test high-risk products.

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