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Janet Yellen Warns AI Risks in Finance

The United States Treasury Department on Thursday, June 6, announced that it is seeking public comments on the assessment of the practice of using artificial intelligence technologies in the financial services industry.

Janet Yellen Warns AI Risks in Finance

The mentioned agency is currently striving to improve its understanding of the opportunities and risks that are associated with applying machine intelligence in the specified sphere of activity.

In the United States, regulators warn that the rapid introduction of artificial intelligence into the financial services industry could pose additional threats. In this case, risks to the US financial system are implied. Regulators note that the relevant negative circumstances will become a reality in the absence of full-fledged and effective mechanisms for controlling the use of artificial intelligence.

It is worth noting that AI monitoring is currently what can be described as a widely discussed topic at the global level. Artificial intelligence is an advanced technology that has prospects for further significant development. Against this background, concerns are being formed in the space of public discourse about the impact that AI will have on existing processes and phenomena in various spheres of activity and dimensions of human life. Moreover, some people perceive the impressive cognitive abilities of artificial intelligence as a potential threat. It is worth noting that such a reaction to an alternative form of mind is largely natural, but this does not mean that the corresponding fears necessarily materialize. In a certain sense, AI is unknown, since there is still no definitive understanding of the limits to which advanced technology can develop and whether it has the potential for independent evolution. The lack of control over the unknown in the human mind generates fear. At the same time, it should be remembered that many inventions that have significantly changed human life were initially perceived with caution. In the context of assessing the prospects for the development of artificial intelligence, the characterization of AI as a source of some kind of catastrophe on a universal scale is excessive and unjustified.

Treasury Secretary of the United States Janet Yellen, as reported by the media, believes that the use of artificial intelligence in the financial services industry can reduce transaction costs, but at the same time, the corresponding process is associated with significant risks.

The Treasury Department is interested in forming an understanding based on a wide range of public views on how innovative solutions in the area of machine intelligence can contribute to ensuring inclusive and equitable access to the mentioned services. The public will submit their comments on this issue within 60 days.

It is also worth noting that many investors are currently seeking to benefit from the so-called artificial intelligence boom. At the same time, the technology giants are starting what can be symbolically described as an arms race in the area of machine intelligence. Against the background of these tendencies, the distinctive features of which are a high degree of intensity and global scale, regulators are concerned that the process of functioning of artificial intelligence systems may get out of control at some point.

It is also worth mentioning that AI is already being used by investors for support forecasting and portfolio management. Moreover, artificial intelligence has become a tool with which banks fight fraud and improve the quality of customer service.

Besides, the rapid evolution of machine intelligence has the potential to lower the cost of financial services and simplify access to relevant products.

An official of the Treasury Department, during a conversation with media representatives, said that Janet Yellen herself used chatbots based on artificial intelligence.

The main concerns of regulators in the context of the potential risks associated with the application of machine intelligence in the financial services industry are focused on such aspects of advanced technologies as complexity and opacity. Many artificial intelligence models function as a kind of black box. In this case, it is implied that the internal processes occurring in AI systems are inaccessible to outsiders. If at some point Wall Street companies start relying more on machine intelligence models, it will be extremely difficult for regulators to determine the level of security of these firms’ activities.

Also, the intensive use of artificial intelligence in the financial services industry may be associated with problems caused by the fact that the same AI configurations will be applied by different brands and investors. A specific aspect of this practice may be that there will be crowded market positions that exacerbate market moves, both to the upside and downside.

Moreover, the use of artificial intelligence in the financial services industry contains a potential concentration risk. In this case, it is assumed that the products of one supplier of AI systems will be applied by a large number of representatives of the mentioned sphere of activity. Against the background of the specified probable specifics, there is a risk that in the event of bankruptcy of a certain developer of artificial intelligence, many Wall Street companies may face significant damage.

Another problem is that sometimes AI models generate biased results as part of responses to user queries. Within the framework of this negative specificity, there is a risk that artificial intelligence may cause an incorrect financial decision with consequences in the form of significant damage.

All of these risks raise concerns on the part of Janet Yellen. At the same time, according to the media, the Treasury Secretary has not yet paid attention to the problem of so-called hallucinations. In this case, it is implied that artificial intelligence can fictionalize certain information and at the same time offer it to the user as reliable. Against the background of this negative specificity of AI, the risk of making incorrect financial decisions is also formed.

It is worth noting that in February, the Treasury Department introduced artificial intelligence to catch intruders trying to steal funds from taxpayers. It is worth noting that AI can also be used as a kind of reverse action tool. This means that cybercriminals have access to artificial intelligence and can apply advanced technology for their purposes. In this case, user awareness is important. For example, an Internet search query such as how to know if my camera is hacked will allow anyone to get information about signs of unauthorized access to the device.

As the media reported, the Treasury Department intends to expand the use of artificial intelligence.

As we have reported earlier, OpenAI and Google DeepMind Employees Want to Speak Out on Concerns About AI.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.