Treasury Secretary Janet Yellen to Detail Risks Associated With AI
Treasury Secretary Janet Yellen will caution financial institutions on Thursday (June 6) about risks associated with the use of artificial intelligence (AI).
While AI is already used in the financial services sector for forecasting, fraud prevention, customer support and other use cases, the technology’s rapid evolution presents risks along with opportunities, Yellen will say in a speech to be delivered Thursday at the Financial Stability Oversight Council (FSOC) 2024 Conference on Artificial Intelligence & Financial Stability.
Excerpts from Yellen’s speech were provided to PYMNTS by the Treasury Department.
“Specific vulnerabilities may arise 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 said in the excerpts.
“Concentration among vendors developing models, providing data and providing cloud services may also introduce risks, which could amplify existing third-party service provider risks,” Yellen added. “And insufficient or faulty data could also perpetuate or introduce new biases in financial decision making.”
The Treasury Department is playing a key role in the Biden Administration’s efforts to harness the potential of AI while also mitigating risks, Yellen said in the excerpts.
Treasury regularly communicates with federal financial regulators about their efforts related to AI; engages with the public and private sectors on using AI to mitigate illicit finance risks; and is building its own capacity to use AI in its own operations, Yellen said.
Similarly, the FSOC will continue to monitor AI’s impact on financial stability, facilitate the exchange of information, promote dialogue among financial regulators and support efforts to better understand associated risks, Yellen added.
“The tremendous opportunities and significant risks associated with the use of AI by financial companies has moved this issue toward the top of Treasury’s and the Financial Stability Oversight Council’s agendas,” Yellen said in the excerpts.
In December, the FSOC identified the use of AI in financial services as a vulnerability in the financial system. That was the first time the agency did so.
In its 2023 annual report released at that time, the FSOC recommended monitoring the rapid developments in AI and deepening expertise and capacity to identify emerging risks.
