Securities Regulation Daily Wrap Up, AI NEWS—CFTC Commissioner Johnson urges vigilance in addressing AI integration risks at FIA L&C Panel, (Apr 29, 2024)
By Elena Eyber, J.D.
Commissioner Kristin N. Johnson emphasized the urgent need for robust regulation and oversight to address the integration of AI in financial markets.
CFTC Commissioner Kristin N. Johnson delivered opening remarks at the FIA L&C Panel by emphasizing the significance of ongoing dialogues about the impact of emerging technologies like generative AI on financial markets. While these innovations hold promise for advancements in various sectors, Johnson cautioned against overlooking the potential risks associated with their integration without proper oversight.
Johnson highlighted three key interventions she has advocated for as a Commissioner. First, Johnson emphasized the need for heightened penalties for fraudulent or manipulative use of AI in financial markets, stressing the importance of adapting surveillance technologies to keep pace with market evolution. Second, Johnson called for a principles-based regulatory framework to address the increasing prevalence of AI, citing the CFTC's initiatives to understand AI's uses and potential risks. Third, Johnson proposed the establishment of an inter-agency task force to harmonize safeguards and ensure market stability and integrity.
Reflecting on the current landscape, Johnson noted the diverse ways AI is already being utilized in CFTC-regulated markets, including trading, risk management, compliance, and customer service. Johnson stressed the importance of adapting existing regulations and governance structures to effectively oversee AI applications and ensure compliance with evolving market dynamics.
Looking ahead, Johnson outlined key considerations for a new regulatory framework, including promoting explainability of AI models, implementing robust data controls, addressing bias, and enhancing governance and monitoring mechanisms. Johnson proposed specific interventions such as establishing an interagency task force for information sharing and combatting AI-enabled market manipulation and fraud. Additionally, Johnson highlighted initiatives by the Market Risk Advisory Committee to survey AI usage, develop new guidance or rulemaking, and expand examination questionnaires to enhance transparency regarding AI adoption among registrants.
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