SEC Chairman: AI May Lead to Next Financial Crisis

Securities and Exchange Commission (SEC) Chairman Gary Gensler has expressed significant concerns about the potential consequences of artificial intelligence (AI) on the financial system. In an interview with DealBook, Gensler outlined his views on how AI could become a systemic risk and the need for responsible regulation.

AI as a Transformational Technology with Risks

Gensler sees AI as a transformational technology set to impact business and society. He co-wrote a paper in 2020 on deep learning and financial stability, concluding that a few AI companies would build foundational models that many businesses would rely on. This concentration could deepen interconnections across the economic system, making a financial crash more likely.

Gensler expects that the United States will most likely end up with two or three foundational AI models, increasing “herding” behavior. “This technology will be the center of future crises, future financial crises,” Gensler said. “It has to do with this powerful set of economics around scale and networks.”

Concerns About Concentration and Regulation

The SEC chief’s warnings extend to the potential conflicts of interest in AI models. The rise of meme stocks and retail trading apps has highlighted the power of predictive algorithms. Gensler questions whether companies using AI to study investor behavior are prioritizing user interests.

“You’re not supposed to put the adviser ahead of the investor, you’re not supposed to put the broker ahead of the investor,” Gensler emphasized. In response, the SEC proposed a rule On July 26, 2023 requiring platforms to eliminate conflicts of interest in their technology. The SEC’s proposal was to address conflicts of interest arising from investment advisers and broker-dealers using predictive data analytics to interact with investors.

SEC Chairman Gary Gensler emphasized that the rules, if adopted, would protect investors from conflicts of interest, ensuring that firms do not place their interests ahead of investors’.

The proposal would require firms to analyze and eliminate or neutralize conflicts that may emerge from using predictive analytics. The rules also include provisions for maintaining records regarding compliance with these matters.

The question of legal liability for AI is also a matter of debate. Gensler believes companies should create safe mechanisms and that using a chatbot like ChatGPT does not delegate responsibility. “There are humans that build the models that set up parameters,” he stated, emphasizing the duty of care and loyalty under the law.

Balancing Innovation with Responsibility

Gensler’s insights serve as a timely reminder of the importance of balancing innovation with responsibility. As AI continues to transform various sectors, including the financial system, his warnings underscore the need for careful regulation, oversight, and ethical considerations.

The SEC’s focus on AI’s potential risks reflects a growing awareness of the need for a comprehensive approach to ensure that technology serves the interests of investors and the broader economy, rather than creating new vulnerabilities.

Image source: Shutterstock


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SEC Chairman Gary Gensler Faced with Scrutiny Over Compliance with Federal Recordkeeping Requirements

The Chairman of the U.S. Securities and Exchange Commission (SEC), Gary Gensler, is under scrutiny for alleged noncompliance with federal recordkeeping requirements. This issue has sparked controversy in the crypto world due to the potential implications on regulatory transparency and accountability.

In November 2022, a letter addressed to Gensler and the SEC questioned their compliance with recordkeeping requirements. The primary concern revolved around evidence suggesting the SEC might not be identifying and producing records of official business conducted on non-email or ‘off-channel’ platforms like Signal, WhatsApp, Teams, and Zoom. This letter did not receive a satisfactory response, raising concerns among cryptocurrency enthusiasts about the SEC’s commitment to transparency.

Furthermore, there are growing concerns that the SEC might not be fulfilling its recordkeeping obligations related to the Administrative Procedure Act’s (APA) notice and comment rulemaking process. Specifically, it is questioned whether the SEC has adequately documented feedback on its proposed rules, which is essential for formulating rules based on a complete record, in compliance with the APA.

Public calendars show Gensler had numerous meetings with different groups since his chairmanship began in April 2021. However, only a few of these meetings are documented in the comment files, increasing worries about the SEC’s recordkeeping practices.

For instance, Gensler is reported to have met with CalPERS, a proponent of the SEC’s radical climate disclosure rule proposal, multiple times, yet only two of these meetings appear in the Climate Proposal comment file. Similar discrepancies have been noted with other groups like Better Markets and Healthy Markets, raising further questions about the SEC’s recordkeeping accuracy.

In response to these concerns, the original authors of the November 2022 letter have demanded full and accurate responses to a new set of requests. These include certifications of the SEC’s compliance with federal record-keeping and transparency requirements, an explanation of the SEC’s definition of “off-channel communications,” and the provision of lists of all such platforms and SEC employees who have used these for official business.

The SEC has until July 17, 2023, to respond to these demands. The crypto community is closely watching these developments, as they could impact the SEC’s transparency and accountability, two crucial factors in a maturing cryptocurrency regulatory environment.


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Former Student of SEC Chairman Weighs in on Binance and Coinbase Lawsuits

Former MIT Sloan School of Management student and teaching assistant for Gary Gensler, known only as ‘Kenny’ on Twitter, has offered insights into the recently filed lawsuits against Binance and Coinbase by the Securities and Exchange Commission (SEC), as well as his personal journey into the world of blockchain and crypto.

Kenny took to Twitter to share his experience of studying under the current SEC Chairman, Gensler, before his appointment to the role. Notably, Kenny wrote a report on Binance Coin (BNB) as a student, which he shared with both Gensler and Binance founder Changpeng Zhao, or CZ as he is commonly known.

Reflecting on this time, Kenny wrote, “It wasn’t the report but the interaction between Mr. Gensler & Mr. Zhao. I felt an opportunity for a future of blockchain that was open to innovation from both the side of the regulator and the innovator.”

Later, while interning in Shanghai in the summer of 2019, Kenny worked with Victor Ji on a project related to decentralized identification for small businesses. Kenny recalls reaching out to Gensler to discuss these ideas, describing their conversation as thoughtful.

In the tweets, Kenny acknowledges his growth in the world of blockchain and credits Gensler, Ji, and Zhao for providing direction and inspiration. Kenny states, “Meeting Mr. Gensler, hacking with Victor, getting recognized by Mr. Zhao… All felt like winds from the universe guiding me.”

This personal connection made the recent lawsuits filed by the SEC against Binance and Coinbase particularly impactful for Kenny. On June 5 and 6, 2023, the SEC filed 13 charges against various Binance entities and sought emergency relief to ensure the protection of Binance.US customers’ assets, respectively.

Speaking about the lawsuits, Kenny said, “The recent news regarding the lawsuits against @binance and @coinbase is truly an unfortunate outcome from the perspective of someone inspired by the same figures entangled in this.”

Despite his personal connections, Kenny remains hopeful for the future of blockchain and crypto, concluding with, “I truly hope that whatever comes out of this takes into account all of the hard work that the brightest minds are putting into the space to change the world.”


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Crypto Needs Regulation If It’s Going To Survive, Says SEC Boss

The Chairman of the Securities and Exchange Commission (SEC) has called for the crypto space to work with regulators. The Financial Times reported that Chairman Gary Gensler had asked Congress to empower his agency so they will be better able to govern the market. It is still not clear yet which agency has oversight of the cryptocurrency industry, as regulators mainly classify bitcoin as more of a commodity than it is a security.

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It is estimated that less than 10% of the world currently knows about crypto. But nevertheless, it is still a large enough number that has prompted regulators to start looking into ways of properly regulating these digital assets. It is no longer just retail investors who are trying to make some quick profit on highly volatile markets. Institutional investors have also thrown their hat in the ring, like in the case of Michael Saylor’s MicroStrategy.

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Finance Is About Trust

Gensler believes that if the market is to grow, then it needs to embrace regulation. The SEC chairman explained that regulation would provide trust in the market, which is important if the market does not want to become irrelevant over time. “Finance is about trust, ultimately,” Gensler said. Gensler’s focus is mostly on trading platforms, given that this is where the majority (~95%) of activities in the crypto market are carried out.

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Gensler had earlier suggested that crypto platforms register with the Securities and Exchange Commission (SEC). This was met with disdain from investors who do not want governmental control over cryptocurrencies. But Chairman Gray Gensler has again urged these platforms to register with regulations. “Talk to us, come in,” said Gensler.

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“There are a lot of platforms that are in operation today that would do better engaging and instead there is a bit of begging for forgiveness, rather than asking for permission.”

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There have been crackdowns going on in the crypto space on exchanges. Most prominent of these have been the crackdowns on Binance by various countries. BlockFi locked in a regulatory showdown down with three states, and most recently, Uniswap being investigated by the SEC.

Crypto Market Will Benefit From Regulation

Regulation may not be an easy topic in crypto, but it does not make it any less important. Exchanges already realize that if they wish to grow in the long-term, they are going to have to work with regulators.

To this end, Sam Bankman-Fried, CEO and co-founder of FTX exchange, said in an interview that he was taking regulation “extremely seriously.” The CEO believes that working with regulators will ensure the survival of the industry. Adding in that exchanges working with regulators will ensure that the rules being created do not harm the market, “killing the use for it in the first place.”

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It is still not clear where most crypto products fall when it comes to regulatory practices. But Gensler believes decentralized finance platforms fall under the purview of the SEC. “It doesn’t matter whether it’s a stock token, a stable-value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities,” Gensler said to the Aspen Security Forum. “These products are subject to the securities laws and must work within our securities regime.”

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Crypto total market cap char from

Crypto total market cap finds comfortable position above $2 trillion | Source: Crypto Total Market Cap on
Featured image from Reuters, chart from


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