The SEC chair described a doomsday scenario in which big financial institutions rely on a small number of AI algorithms to make investment decisions — creating a vulnerability that regulators could miss by focusing on only a sliver of the sector.

A growing dependence on artificial intelligence could pose a danger to the U.S. financial system, and regulators need to rethink their siloed approach to rulemaking to minimize the risk, Securities and Exchange Commission Chair Gary Gensler said.

The SEC and other Washington regulators are grappling with the rise of powerful AI systems that can augment or replace human decision-making. But in the financial industry — where banks, brokers and investment firms oversee trillions of dollars — the potential for economic disaster is especially acute, Gensler said.

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