The financial industry is starting to include artificial intelligence in a variety of products and services. The use of AI in DeFi systems could make it harder to regulate. Kristin Johnson, a Commissioner at the Commodity Futures Trading Commission (CFTC), has suggested tougher penalties for AI use in the financial markets.

Johnson shared her concerns about artificial intelligence and its impact on regulating financial markets at a Fintech and Blockchain Symposium. She mentioned how using AI in systems running on blockchain technology can cause new challenges in monitoring, risk management, and compliance.

Financial markets are incorporating AI in different ways, like robo-advisers, compliance programs, and trading applications. DeFi might use AI in areas such as algorithmic and automated trading, according to Johnson. Regulators are worried about potential risks of AI, like bias, manipulation, and fraud, as well as issues related to protecting consumers.

One challenge with DeFi is its lack of a central entity, unlike traditional markets. Johnson highlighted that decentralized autonomous organizations and blockchain-based platforms can deviate from traditional market assumptions. Using AI in DeFi systems could complicate regulatory matters, especially in terms of supervision and compliance with important rules like the Bank Secrecy Act.

Johnson suggested that the CFTC should address AI issues with a principles-based approach. She emphasized the need for harsher penalties for those who intentionally manipulate markets, commit fraud, or try to avoid AI regulations.