Treasury Secretary Janet Yellen stated that the use of artificial intelligence poses “significant [financial] risks” even though it appears to benefit financial firms, according to Fox News Digital.
Fox News obtained excerpts of a speech Yellen is prepared to deliver on Thursday. She is prepared to speak at an AI conference that will be held by the Financial Stability Oversight Council and the Brookings Institutions. She is set to concede that AI “offers tremendous opportunities for the financial system,” but that there are still risks involved.
‘Concentration among vendors developing models, providing data, and providing cloud services may also introduce risks, which could amplify existing third-party provider risks.’
“For many years, the predictive capabilities of AI have supported forecasting and portfolio management,” Yellen stated in an excerpt. “AI’s ability to detect anomalies has contributed to efforts to combat fraud and illicit finance. Many customer support services have been automated. Across these and many other use cases, we’ve seen that AI, when used appropriately, can improve efficiency, accuracy, and access to financial products.”
“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,” she continued.
Yellen went on to say that the “complexity and opacity” of AI models, along with “inadequate” risk management frameworks that crop up from the same data and models can lead to vulnerabilities, according to The Hill.
She went on to say that if too many market players rely on the same AI models and data, it could result in reinforcement of existing biases or create new ones that significantly impact financial markets.
“Concentration among vendors developing models, providing data, and providing cloud services may also introduce risks, which could amplify existing third-party provider risks. And insufficient or faulty data could also perpetuate or introduce new biases in financial decision making,” Yellen said.
Even though there are some serious challenges, Yellen remarked that AI-powered tools can greatly help broaden access to financial services. This could also make them more affordable for the average consumer.
“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 said. She went on to say that the IRS is using AI for “enhanced fraud detection.”
“Scenario analysis, often used by firms and governments to understand opportunities and risks in the context of uncertainty, could also be beneficial,” she continued.
“Given how quickly AI technology is developing, with fast-evolving potential use cases for financial firms and market participants, scenario analysis could help regulators and firms identify potential future vulnerabilities and inform what we can do to enhance resilience.”
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