U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler recently discussed the challenges of regulating artificial intelligence (AI) and cryptocurrencies in finance.
While both technologies are advancing rapidly, Gensler said regulatory frameworks are needed to keep pace with the digital revolution.
Speaking about the rise of AI, Gensler compared the transformative impact of this technology to the advent of the internet and even electricity. He said AI has become an integral part of the financial sector, affecting everything from brokerage practices to investment advisors. However, the SEC has raised concerns about the ethical use of AI in finance, particularly the potential for conflicts of interest.
Gensler highlighted the risks of AI models being too similar across companies, which could increase systemic financial risks if the technology fails. “If everyone relies on similar AI models, we could see a financial crisis in the future,” he warned, citing the potential dangers of widespread reliance on large cloud providers that underpin AI systems.
While fraud remains a major concern, Gensler said using AI to defraud the public would still fall under the same legal framework as traditional fraud.
On the subject of cryptocurrencies, Gensler reiterated that blockchain and decentralized ledger technologies, as introduced in Bitcoin’s 2008 whitepaper, are not inherently incompatible with existing securities laws. However, he said projects in the crypto space must comply with disclosure requirements and protect investors from conflicts of interest and fraud. He noted that the SEC remains committed to enforcing regulations, especially in an area where many investors have suffered losses due to a lack of transparency and regulation. Gensler also acknowledged the possibility of new legal frameworks emerging to regulate the sector.
Responding to criticism that the SEC’s cryptocurrency regulation is based on enforcement actions, Gensler supported the agency’s approach by arguing for the importance of sound laws and regulations. Reiterating the need for disclosure to protect investors and maintain confidence in capital markets, Gensler drew parallels to market conditions in the 1920s.
While Gensler's term runs through 2026, his focus remains on lowering costs for investors, increasing market resilience and advancing regulatory reform across a variety of sectors.
*This is not investment advice.