We want to welcome our Bloomberg radio and television audience right now to a special conversation with SEC Chair Gary Gensler. And Mr. Gensler, the SEC clearly looking closer at the use of AI tools in finance. We know that from the agency's latest exam priorities, but in parallel, a year ago you embarked on this rulemaking process. And I want to start by asking what sort of additional authority or power you feel you need through a rule that you wouldn't be able to regulate through examinations?
So let me say this. I think that the use of artificial intelligence, which has been around for at least 10 years, has taken on and it's an important transformative part of our economy, every bit as transformative as the internet, more every bit as transformative as 100 years ago when we electrified so many things in our markets, our factories, the automobile, the refrigerator. That transformative in finance. It's being used today by many brokerage apps and investment advisors when they're selling to the public, just as when we're looking at movie apps that have figured out long ago that I'm a rom-com type of guy and want to watch those movies. And so it's to ensure that in the algorithm, in the actual math of the algorithm, that they ensure that they put the public's interest, their customers' interest, ahead of the investment advisor and broker-dealer. That's it in a nutshell.
In a nutshell, do you think that there's financial systemic risk still looming large because of adoption of AI and AI models ultimately being too similar from one brokerage to the next?
I do think so. I said I like rom-coms, so I'll go with that wonderful movie Her, when Scarlett Johansson, you know, played this virtual assistant. When she went offline late in the movie, 8,316 folks were brokenhearted. We could see that in finance. There's right now two or three large cloud providers that are backing some of the biggest investments in what's called generative AI. As the financial sector more and more relies on those big base models, it is not only possible but likely that some financial crisis in the future is that everybody's relying on it. And whether it's like Scarlett Johansson going offline, or if Scarlett Johansson of the future—I'm talking about the AI model—is hurting and taking the capital markets off of some, you know, various cliff. And I think that's a hard project to solve because of the dominance of a few base models likely in the future.
Do therefore more clear rules need to be envisaged here? Is examination the tool of choice?
So I'm separating out. There's important investor protection issues directly about the conflicts, and I think we can do that and proceed forward. I've asked staff for recommendations on a re-proposal of that rule. I think a second area we didn't talk about is fraud. Fraud is fraud. If you use the algorithm and the AI model to defraud the public, it's still fraud. But I think that that's going to play out not only for us but in other agencies around the country, the Federal Trade Commission and elsewhere. But on these systemic issues, on these systemic issues, I think it's a tough challenge that global regulators need to come together. And how do we protect against what is likely to be a very concentrated, interconnected system that's relying, you know, like I say, 8,316 relying on Scarlett Johansson for their love was one thing in a fictional movie, but what do we do here?
If you're just joining us on Bloomberg television and radio, we're speaking with the SEC Chair Gary Gensler. And Mr. Gensler, you're also busy in parallel with the crypto industry. I think there's consensus on the eve of an election that all of those parties involved in responsible want to hammer out some sort of new jurisdictional framework for crypto regulators to make some progress on settling oversight of that industry. Can you talk to us about the work you're doing there and if you're making any progress in that field?
Look, there's nothing incompatible about the ledger technology. You know, it's just this Halloween it will be 16 years since Satoshi Nakamoto wrote that white paper. So happy sweet 16 in a week. There's nothing incompatible about a ledger technology, decentralized ledger technology, and the securities laws. And it's important that in the securities markets that investors get to decide on their investments, but they get the proper disclosure, that we guard against conflicts of interest and the like. And we're going to continue to do that at the Securities and Exchange Commission. If a market's ever going to have trust, it also needs to come into compliance. And a lot of this field, and we've seen the challenges in this field where a lot of people have lost money, regular investors have lost money in a field that's not providing the fundamental disclosure about their projects, about these investment contracts and these schemes. And that there's—it's a field that has a lot of conflicts in the middle of it.
Something interesting's been happening over the last year where you've been focusing on policy and regulation. In the Fifth Circuit Court of Appeals, there have been many suits filed in what is a kind of business-friendly court. How do you have to respond to that and adjust the policy side in response to the litigation side, Mr. Gensler?
No, I think, Ed, it's a really good question. We do everything we do within the law, and how the courts interpret the law, the courts interpret it differently, we adjust. That's what we do. It's part of our great democracy. But I do think that we're focused every day on how we drive lower cost in the system. That's why we did equity market reform, I would note unanimously through our five-member commission. It's why we've worked so hard on the treasury markets, this $28 trillion market at the base of our capital markets, and driving lower cost, which is called efficiency, and lower risk, which is called resiliency, in these really consequential, significant markets.
Just for a moment, reminding our TV and radio audience, we are in a conversation with SEC Chair Gary Gensler. And just to stick with the crypto aspect for a moment more, there is though this ongoing narrative that you haven't changed that much, you haven't adjusted much in terms of it is regulation via enforcement. Will that change ultimately? Do you see laws coming to bear from Congress rather than you having to enforce to regulate?
