RAND Comment In Response to RFI on Uses, Opportunities and Risks of Artificial Intelligence in the Financial Services Sector

In the attached letter, we provide a written comment in response to questions 2, 13, and 18 posed by the Treasury Department's Request for Information on Uses, Opportunities, and Risks of Artificial Intelligence in the Financial Services Sector. Our attached letter is composed of two sections: (1) we provide a broad summary including high level observations and possible remedies and (2) we provide detailed responses to specific questions posed in the request for information. Within our comment, we provide an assessment of the opportunities, risks, and policy implications, including an examination of potential gaps in the current regulatory framework. A key observation is the growing systemic importance of nonbank entities in the AI ecosystem. These organizations, often operating outside the traditional financial services sector, play crucial roles in data collection, storage, model training, and deployment. Given their scale and interconnectedness, they pose risks to financial stability that warrant careful consideration. Our comment also highlights how AI may contribute to non-traditional sources of systemic risk in financial services. This includes the potential for AI to significantly alter the behavior of retail investors and the possibility of malicious actors exploiting AI technologies for nefarious purposes. These factors underscore the need for a nuanced and forward-looking approach to regulation and oversight. Finally, our comment is based on our expertise from prior research on topics related to technology, systemic risks, and financial services and our synthesis of business and academic literatures. We provide the contact information for all authors of this comment at the end of this letter.