Secretary of the Treasury Janet L. Yellen addressed attendees at the Financial Stability Oversight Council’s (FSOC) Conference on Artificial Intelligence and Financial Stability, emphasizing the importance of AI in financial services and its associated risks.
“This is a topic that I—and my colleagues across Treasury, FSOC member agencies, and the Biden Administration—take very seriously,” Yellen stated. She highlighted the conference as an opportunity for public and private sectors to discuss AI's opportunities and risks.
Yellen acknowledged AI's significant contributions to financial forecasting, portfolio management, fraud detection, and customer support automation. “AI, when used appropriately, can improve efficiency, accuracy, and access to financial products,” she said.
However, Yellen also noted the potential risks identified by FSOC in its 2023 annual report. These include complexities in AI models, inadequate risk management frameworks, interconnections among market participants relying on similar data and models, concentration among vendors providing essential services, and biases from insufficient or faulty data.
The Biden Administration has been proactive in addressing these concerns through various initiatives. Yellen referenced President Biden’s Executive Order on AI as a cornerstone of these efforts. She mentioned Treasury’s detailed report released in March under this order which outlines current use cases and best practices related to AI for cybersecurity and fraud prevention in the financial sector.
Treasury has engaged with federal financial regulators on their AI-related efforts. One priority is leveraging technology to mitigate illicit finance risks as part of Treasury’s 2024 National Illicit Finance Strategy. Internationally, Treasury collaborates with allies through bodies like the Financial Stability Board to assess AI's global impacts.
Looking ahead, Yellen announced new initiatives including a formal public request for information from stakeholders about AI's uses in financial services. Additionally, Treasury’s Federal Insurance Office will convene a roundtable on AI and insurance to discuss benefits and challenges faced by insurers.
FSOC will continue monitoring AI’s impact on financial stability while facilitating dialogue among regulators. Scenario analysis may be employed to identify potential future vulnerabilities given rapid technological advancements.
“The tremendous opportunities and significant risks associated with the use of AI by financial companies have moved this issue toward the top of Treasury’s and FSOC’s agendas,” concluded Yellen.
