Treasury Secretary Janet Yellen will deliver a speech on Thursday (June 6), cautioning financial institutions about the risks associated with artificial intelligence (AI) usage. Despite the numerous benefits of AI in the financial services sector, such as forecasting, fraud prevention, and customer support, Yellen emphasizes that its fast-paced advancement necessitates careful consideration of potential risks. Concentrating on the inherent complexity, opacity, and vulnerabilities of AI models, Yellen also highlights the need for robust risk management frameworks and the potential risks stemming from interconnections amongst market participants relying on the same data and models. Moreover, she notes that concentration among AI vendors and service providers could amplify existing risks, while inadequate or flawed data may introduce biases into financial decision making. Yellen asserts that the Treasury Department, as part of the Biden Administration's initiative, is actively involved in harnessing the potential of AI while mitigating associated risks.

This involves regular communication with federal financial regulators to discuss AI-related efforts, engagement with public and private sectors to mitigate illicit finance risks, and developing the Treasury Department's own capacity to leverage AI in its operations. Similarly, the Financial Stability Oversight Council (FSOC) will continue monitoring the impact of AI on financial stability, facilitate information exchange, foster dialogue among financial regulators, and enhance understanding of associated risks. The use of AI in financial services was identified as a vulnerability in the financial system by the FSOC in December, leading to recommendations for ongoing monitoring of AI developments and deepening expertise to identify emerging risks in its 2023 annual report.