CFTC proposes heightened penalties for AI misuse in financial markets

Using artificial intelligence (AI) to conduct financial crimes should attract heightened penalties, a Commodity Futures Trading Commission (CFTC) commissioner has proposed.

Kristin Johnson recently discussed AI at the CFTC’s Technology Advisory Committee (TAC) meeting, revealing the agency’s progress in regulating the rapidly advancing technology.

Johnson revealed that she had advanced three proposals, the first being heightened penalties for offenders who leverage AI to commit financial crimes.

The commissioner believes AI can make detecting and identifying existing challenges, such as market manipulation and fraud, more difficult.

“Bad actors who would use AI to violate our rules must be put on notice and sufficiently deterred from using AI as a weapon to engage in fraud, market manipulation, or to otherwise disrupt the operations or integrity of our markets,” she told the committee.

The proposal is consistent with the Justice Department’s approach. Deputy Attorney General Lisa Monaco has announced that DoJ will seek stiffer sentences for AI-related criminals. Monaco likened AI to firearms—when they are used to commit crimes, the sentences are stiffer as they enhance danger; likewise, AI criminals must be hit with stiffer penalties.

“It is therefore essential that we calibrate the penalties rightly, so that it is clear that AI-enabled misconduct is not worth the risk,” she stated.

Johnson’s second proposal is to create an interagency task force to address AI challenges. She noted that most of its registrants are cross-licensed by multiple regulators and for diverse businesses. AI risks may arise from several segments of their businesses, making it crucial for all regulators to work together.

Johnson proposes that the CFTC create a task force with the SEC, Federal Reserve, Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), and others.

This proposal aligns with President Joe Biden’s executive order that called on all regulators to work together to address AI risks.

A day earlier, CFTC unveiled Ted Kaouk as its first-ever chief AI officer. Kaouk previously served as the agency’s Chief Data Officer.

“Ted has the requisite technical and leadership experience needed to lead and implement the CFTC’s data and AI roadmap at this critical stage to achieve the best outcomes for the CFTC and those it serves,” commented CFTC Chairman Rostin Behnam.

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