CFTC Commissioner Warns of the "Promises and Perils" of AI
Commentary by Chuck Hollis
CFTC Commissioner Kristin N. Johnson warned against the "potential perils of integrating innovation without proper guardrails."
In her opening statement before the CFTC Market Risk Advisory Committee's "Future of Finance" Subcommittee meeting, Ms. Johnson noted the benefits and efficiencies that AI offers the financial sector, including faster trade execution and settlement, more accurate pricing prediction and more precise risk management oversight. She argued that "it is imperative to increase market and prudential regulators’ understanding of how the underlying technology operates, the integrity of the inputs that it relies upon, the potential for neutral technologies to engender biased outcomes, and legal obligations to ensure that outcomes comply with principles of fairness and transparency."
Ms. Johnson advocated for:
(i) greater visibility and transparency regarding CFTC registrants’ use of AI by expanding the annual systems examination questionnaire to incorporate questions that directly inquire about the adoption of AI and related risks,
(ii) the development of a principles-based framework,
(iii) heightened penalties for those who intentionally use AI technologies to engage in fraud, and
(iv) the CFTC to lead in creating an inter-agency task force composed of market and prudential regulators to facilitate information sharing.
Commentary
Regulators are expressing their concern about the deployment and use of artificial intelligence by those companies over which they have authority.
Companies need to be prepared and transparent when responding to regulators’ concerns. To prepare for increased scrutiny, companies should ensure they inventory AI across their organization. They should identify the use cases that are most likely to expose the company to risk, anticipating what would be of interest to the regulators. Finally, companies should implement and document an enterprise governance model and framework that includes appropriate senior management to oversee the company’s use of and deployment of AI.