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CFPB Director Says Regulators Must Monitor Tech’s Role in Finance

Regulators must use their legal authorities to guard against risks posed by the growing role of large technology firms in the financial system, Rohit Chopra, director of the Consumer Financial Protection Bureau (CFPB), said Monday (Dec. 18).

Commenting on the 2023 annual report released Thursday (Dec. 14) by the Financial Stability Oversight Council (FSOC), Chopra said in a prepared statement that large pools of data play a growing role in the financial system and must be monitored as large pools of financial assets are monitored.

“Large technology firms, including Big Tech firms, are leveraging their network effects in new ways,” Chopra said in the statement. “Some of these firms are larger than Wall Street’s most dominant players, and they have been creeping into the financial system by developing networks that move payments and ‘deposits,’ serving as cloud infrastructure players that undergird the digital plumbing of much of the industry, and emerging as foundational models powering new uses of artificial intelligence.”

In its report, the FSOC identified the use of artificial intelligence (AI) in financial services as a vulnerability in the financial system. This was the first annual report in which the regulator had done so.

The FSOC said that while AI offers potential benefits such as cost reduction and improved efficiency, it also introduces risks such as cyber and model threats. It recommended monitoring the rapid developments in AI and deepening expertise to identify emerging risks.

In his statement, Chopra said these are risks that are growing each day and will continue to do so into the future.

He added that the FSOC report clearly highlights the risks and “sets us all on a path for actually using our legal authorities, rather than relegating them to dead letter law.”

The FSOC restored authority to apply stronger financial stability safeguards to financial players that operate outside of the banking system, Chopra said in the statement.

“Despite the bailouts provided to shadow banks in the 2008 financial crisis, and again at the beginning of the pandemic, there are a total of zero firms presently designated for heightened scrutiny,” Chopra said. “Next year, we must turn to credibly implementing the authority.”