Commodity Futures Trading Commission Commissioner Christy Goldsmith Romero acknowledged in a keynote speech today that artificial intelligence “can help drive breakthroughs,” but she stressed that regulators must “manage the risks so we can achieve these promises.” “
Romero’s comments were a highlight of the first day of the annual financial services conference hosted by the Consumer Federation of America in Washington, DC.
“In terms of protecting financial stability, especially where it comes to AI models, there may be huge opportunities and huge risks,” he said. “It is essential that regulators increase their ability to understand AI and monitor how AI is being used in regulated financial services.”
Romero said that AI regulation is an “important issue”, explaining that “data and assumptions matter” with AI models. He cited “concentration risk” as a potential downside: because developing AI can be very expensive, we can only rely on a few models.
Quoting SEC Chairman Gary Gensler, he explained, “Overreliance on certain AI models can lead to herd behavior.”
“Who is making the decisions, including determining whether the deployment of AI is responsible?” Romero asked. “In CFTC territory, the use of AI for algorithmic trading, trade settlement, margin calls, collateral management or other areas that could potentially impact financial stability must be accompanied by strong governance provisions.”
The commissioner said fair lending practices could also be affected as AI technologies based on incomplete training data are coming under criticism due to internal bias.
“Regulatory coordination is particularly important where technologies such as AI are developing rapidly,” he said. Citing President Biden’s recent executive order on AI.
The commissioner also warned about potential conflicts of interest and risks from cryptocurrency trading platforms owning affiliates that also perform exchange and clearinghouse functions.
“Regulators should exercise caution when considering changes to market structure and first determine that they do not result in increased risks, particularly to customers and financial stability,” he said.
Romero cited collapsed crypto exchange FTX as an example of the dangers of “bespoke” market structures.
“In October 2022, just weeks before the collapse of FTX, I warned of financial stability risks in crypto,” she said. “Crypto-related companies may perform many functions that are divided into different entities in traditional finance [and] These conflicts present significant risks that will be disclosed and resolved in a regulated environment.
“In an unregulated environment, the full extent of these conflicts may not be disclosed or resolved, leading to widespread harm and contagion risks,” they wrote. “We know how the FTX story ended.”
More broadly, Romero also warned against rolling back reforms implemented after the 2008 financial crisis.
“Regulators must not return to an era of uncontrolled risk-taking that destabilized our financial system and left consumers bearing the burden,” he said. To relax our guards.”
He called on public interest groups like the Consumer Federation of America to consider this when regulators consider changing post-crisis rules.
As a derivatives regulator, the CFTC plays an important oversight role related to cryptocurrency markets, and the agency has taken dozens of enforcement actions against crypto fraud and manipulation in recent years. The Commissioners also stressed the need to ensure responsible innovation in the sector.
Goldsmith Romero previously served for a decade as Special Inspector General overseeing the government’s response to the 2008 financial crisis. President Biden appointed the CFTC Commissioner and took office in March.
Editor’s note: This story was produced with Decrypt AI from sources referenced in the text, and fact-checked by Ryan Ozawa.