Janet Yellen Warns Significant Risks Of Using AI In The Financial Sector

US Treasury Secretary Janet Yellen, (photo: x @SecYellen ·)

JAKARTA - US Treasury Secretary Janet Yellen warned that the use of artificial intelligence (AI) in the financial sector could reduce transaction costs but also bring a "significant risk." He conveyed this in a speech on Thursday, June 5.

In a speech to the Financial Stability Supervisory Board and the AI conference at the Brookings Institution, Yellen stated that risks related to AI have become the main agenda of the regulatory board.

"Special security may arise from the complexity and intransparency of AI models, inadequate risk management frameworks to account for AI risks, and interconnections that arise as many market participants rely on the same data and models," Yellen said in the quote.

He also noted that concentration among vendors developing AI models and providing data and cloud services can also introduce risks that could strengthen the risk of existing third-party service providers.

"Unsuitable or flawed data can also select or introduce new biases in financial decision making," Yellen added.

However, in a speech at a conference on AI and financial stability, Yellen acknowledged the benefits of AI in customer service automation, increased efficiency, fraudulent detection, and against illegal finance.

"Developments in natural language processing, image recognition, and AI generatives, for example, create new opportunities to make financial services cheaper and more accessible," Yellen said in his speech.

He added that the Treasury Department also regularly communicates with financial regulators about their AI-related efforts, including utilizing technology to reduce the risk of illegal finance, including money laundering, terrorist financing, and sanctions avoidance. "The US Treasury Department uses AI tools in the Internal Revenue Service to increase fraud detection," he added.

"The FSOC, led by the Treasury Department and includes the Federal Reserve and other major financial regulators, will continue its efforts to monitor the impact of AI on financial stability, facilitate information exchange, and promote dialogue among financial regulators," Yellen said.

The council will also continue to support efforts to build surveillance capacity and use scenario analysis to better understand risks and opportunities.

"Given how fast AI technology is developing, with cases of fast-growing potential use for financial companies and market participants, scenario analysis can help regulators and companies identify potential vulnerabilities in the future and tell us what we can do to increase resilience," Yellen said.