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Treasury Secretary Janet Yellen Highlights AI’s Opportunities and Risks in Finance Treasury Secretary Janet Yellen Highlights AI’s Opportunities and Risks in Finance
According to Reuters, U.S. Treasury Secretary Janet Yellen is set to address the complexities and potential pitfalls of artificial intelligence in... Treasury Secretary Janet Yellen Highlights AI’s Opportunities and Risks in Finance

According to Reuters, U.S. Treasury Secretary Janet Yellen is set to address the complexities and potential pitfalls of artificial intelligence in the financial sector, emphasizing both its benefits and significant risks.

In a speech prepared for the Financial Stability Oversight Council and Brookings Institution AI conference, Yellen outlines how AI could lower transaction costs and introduce new opportunities in the sector, but she also warned of the associated vulnerabilities that could come with AI integration.

Yellen’s speech, scheduled for Thursday, places AI-related risks prominently on the regulatory council’s agenda. She points out that the intricacies and opacity of AI models, along with inadequate risk management frameworks, could pose serious threats.

Yellen notes that “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,“.

The concentration of AI model developers and providers of data and cloud services is another area of concern. This concentration, Yellen suggests, may amplify existing risks associated with third-party service providers. “Concentration among the vendors that develop AI models and provide data and cloud services may also introduce risks,” she says.

Yellen also highlights the potential for AI to perpetuate or introduce new biases in financial decision-making due to insufficient or faulty data. “And insufficient or faulty data could also perpetuate or introduce new biases in financial decision-making,” she warns.

Despite these risks, Yellen acknowledges the considerable advantages AI offers in the financial sector. She emphasizes AI’s role in automating customer support services, improving efficiency, detecting fraud, and combating illicit finance.

Remarking, “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,” Currently, the Treasury Department is actively engaging with financial regulators to harness AI technology to mitigate illicit finance risks, including money laundering, terrorist financing, and sanctions evasions.

Yellen reveals that AI tools are currently being employed within the IRS to enhance fraud detection. “The Treasury Department is in regular communication with financial regulators on their AI-related efforts,” she adds.

Yellen also is planning to assure that the FSOC, led by the Treasury and including the Federal Reserve and other major financial regulators, will persist in monitoring AI’s impact on financial stability. The council aims to facilitate the exchange of information and promote dialogue among financial regulators. “FSOC will continue its efforts to monitor AI’s impact on financial stability, facilitate the exchange of information, and promote dialogue among financial regulators,”

Finally, Yellen will emphasizes the importance of building supervisory capacity and using scenario analysis to understand risks and opportunities better. “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,“.

Though an a full regulatory framework on AI regulation is unlikely to happen this year in the United States, it seems that The Treasury Department and others are taking Biden’s executive order to heart and are working toward finding ways to manage AI as it emerges in their domains.

ODSC Team

ODSC Team

ODSC gathers the attendees, presenters, and companies that are shaping the present and future of data science and AI. ODSC hosts one of the largest gatherings of professional data scientists with major conferences in USA, Europe, and Asia.

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