Responsible use of AI in global financial markets | Brookings

In 1999, Commissioner Christy Goldsmith-Romero of the Commodity Futures Trading Commission (CFTC) created a new Technology Advisory Committee (TAC) to help with issues at the intersection of technology, law, policy and finance. In 2023, Brookings Director of the Center for Technological Innovation Nicol Turner Lee was appointed to serve as a member and co-chair of the Subcommittee on Emerging and Developing Technologies, for which she co-authored the pioneering and inaugural report for the Commission entitled, “Responsive artificial intelligence in financial markets: opportunities, risks and recommendations.” The report is of increasing importance as the Biden-Harris administration works toward safe, reliable, and secure artificial intelligence (AI), whose principles and action statements are codified in the latest White House Executive Order.

The growing adoption of AI in the financial services sector will reshape the industry as a whole from services and retail operations to supported ones. Comprised of a panel of distinguished experts on the Subcommittee working on derivatives and trading markets, as well as on AI, the report compiled research and findings about the opportunities and challenges of AI adoption and use by CFTC regulated entities, including trading organizations . in the US derivatives markets, such as futures, options and swaps. In particular, the agency has jurisdiction over designated contract markets, exchange execution facilities, derivatives clearing organizations and exchange data repositories. The report sets the context, defines important terms (including “Responsible Artificial Intelligence”), and reviews the current AI policy landscape along with existing and hypothetical vulnerabilities in their target markets. Information in the report also highlights valuable use cases of AI in financial services, including fraud detection, risk management, and the identification, execution and back-testing of trading strategies.

The report concludes with five detailed recommendations for the CFTC. The proposals encourage the Commission to use its power to convene a roundtable of registered entities, who may consider adopting and using the AI ​​risk management framework advanced by the National Institute of Standards and Technology. (NIST). The report also proposes that the Commission conduct legal gap analyzes for autonomous AI systems, harmonize AI policies with other agencies such as the US Securities and Exchange Commission (SEC), and engage staff in domestic and international dialogues about appropriate use of AI models in autonomous finance. systems.

In theory, AI represents a potentially valuable tool for stakeholders internal and external to the CFTC, as well as the global financial market at large. However, regardless of its potential value, the use of AI by CFTC registrants will require further exploration and discussion, including increased awareness of the function of automated decision-making models and the necessary governance. Due to the lack of direct knowledge about CFTC-registered entities currently using AI, and the level of transparency and explainability among these firms to date, regulators and clients should further explore the various technologies being used (e.g. eg, predictive, algorithmic, generative, or other frontier models), and for what use cases. Other considerations include responsible development, the quality of training data, the extent of human involvement in autonomous trading models, data privacy, auditing and oversight, and the breadth of internal talent at the CFTC to perform all or some of the these suggested activities.

The White House EO on AI urges federal agencies and regulatory commissions to think carefully and critically about how they plan to develop, use, and evaluate AI technologies within the context of their functions. The CFTC report represents a comprehensive approach to identifying and mitigating AI risks in scenarios such as financial trading and presents an opportunity for future disclosures by the Commission and related agencies, including the US Treasury Department, which has also begun exploring of AI use cases. Recently, Commissioner Goldsmith Romero was appointed to head the Federal Deposit Insurance Corporation by President Biden. It is very likely that she will also bring a deliberative AI strategy to that organization, which also plays a vital role in the national economy.