AI will be transformational, but it could also trigger a future financial crisis by promoting herd mentality, SEC chief says

• AI will be transformational but it also could trigger future mayhem in financial markets, SEC's Gary Gensler said.
• That's because the technology could encourage "herding" among investors where they all make similar decisions.

Artificial intelligence has its advantages, but it could also be responsible for triggering a future financial crisis, according to Securities and Exchange Commission (SEC) chair Gary Gensler.

Speaking before the National Press Club on Monday, Gensler said AI is the "most transformative technology of our time, on par with the internet and mass production of automobiles."

He further noted how AI could shape humanity for the better, opening up opportunities in healthcare, science and finance. "As machines take on pattern recognition, particularly when done at scale, this can create great efficiencies across the economy," Gensler said.

But the technology doesn't come without its risks. According to the former Goldman Sachs investment banker, AI threatens the health of financial markets given it could encourage investors to make similar decisions regarding their trades.

"AI may heighten financial fragility as it could promote herding with individual actors making similar decisions because they are getting the same signal from a base model or data aggregator. This could encourage monocultures. It also could exacerbate the inherent network interconnectedness of the global financial system," Gensler said.

"Thus, AI may play a central role in the after-action reports of a future financial crisis," he added.

The AI industry has surged in popularity this year following the smashing debut of OpenAI's ChatGPT. Tech companies have seen their valuations surge, CEOs have had their wealth boosted, and the US stock market has rallied so much that it's entered a bull market.

But like Gensler, there's been critics of the industry as a whole. Billionaire investor Ray Dalio for one warned that AI could create massive disorder, while Apple co-founder Steve Wozniak said it could give rise to illicit activity.