In a groundbreaking move, US regulators have officially acknowledged the use of artificial intelligence (AI) as a vulnerability in the financial system. The Financial Stability Oversight Council (FSOC), in its annual report released on Thursday, emphasized the need to closely monitor the “rapid developments in AI, including generative AI,” marking the first time such concerns have been explicitly addressed.
Generative AI software, capable of swiftly producing text, images, and audio from simple commands in everyday language, has caught the attention of regulators due to its potential impact on the financial landscape. The FSOC stressed the importance of ensuring that oversight structures keep pace with or stay ahead of emerging risks posed by advancements in AI.
Treasury Secretary Janet Yellen, who chairs the council, highlighted the ongoing evaluation and adoption of innovative technologies by financial institutions. Yellen stated, “As financial institutions continue to evaluate and adopt innovative technologies, uptake of AI could accelerate.” However, she also emphasized the necessity of supporting responsible innovation and applying existing principles and rules for risk management.
The FSOC, established in the aftermath of the 2008 global financial crisis, includes key figures such as the chairs of the Federal Reserve and the Securities and Exchange Commission. The annual report affirmed the resilience of the US financial system and the soundness of the banking system, despite earlier-year turmoil related to the collapse of some regional lenders.
The council has proposed a review of capital measures to ensure they adequately reflect an institution’s ability to absorb losses. Additionally, it recommended close monitoring of uninsured deposit levels by banking agencies. In response to the evolving landscape, the FSOC urged financial institutions and regulators to enhance their capabilities for monitoring AI innovation and identifying emerging risks.
The report also outlined recommendations for increased data collection to monitor climate-related financial threats and proposed legislation for the regulation of stablecoins. Stablecoins, cryptocurrencies pegged to stable assets like the US dollar to prevent drastic price movements, have gained prominence, prompting calls for regulatory frameworks to address potential risks associated with their use in the financial system.