Beyond the AI Headlines: How the Financial System Protects Your Money
This past weekend, Anthropic co-founder Dario Amodei published an essay on the pace of AI development, raising concerns about how quickly the technology is advancing and urging governments to help regulate the industry. A few of you have asked what this might mean for your money and the broader financial system.
I don’t pretend to know what AI will be capable of in five or ten years from now, but thought this would be a good opportunity to walk through how the financial sector defends your assets, how those defenses have held up under real stress in the past, and what you can do to protect yourself.
There Have Always Been Bad Guys
Wrongdoers have always looked for ways to separate people from their assets by:
Gaining unauthorized digital or physical access to assets
Impersonating people over the phone, mail, or online
Falsifying records, deeds, or financial statements
AI probably won’t change the underlying goal of financial crime. It is more likely to allow bad actors to attempt theft, fraud, and misrepresentation at greater speed and scale.
How the Financial System Defends Itself
Major banks and financial institutions protect client assets through a layered defense system. In the physical world, this means vaults, alarm systems, and armed security. In the digital world, it means hiring skilled professionals to build barriers, monitor for suspicious activity, and anticipate the next scheme before it appears.
Beyond prevention, institutions maintain Business Continuity Plans that spell out how they would respond if something went wrong. A major piece of this is the ability to reconstruct records after an incident. For example, could the firm use statements or other backup data to confirm your account balances, positions, and account numbers if their primary systems were wiped out?
On top of these processes, institutions carry insurance that pays out in the event of a loss. When an insurer doesn’t want to hold all of the risk themselves, they can also purchase reinsurance, which is insurance for the insurance company.
Tested Under Real Stress
A hurricane threatened THE record-keeper
The Depository Trust & Clearing Corporation (DTCC) functions as the “back office” of the US financial markets. When you buy or sell a share today, no one physically trades a certificate. Instead, the DTCC simply updates its records to reflect the new owner.
In 2012, Hurricane Sandy flooded the DTCC’s vaults. The organization was able to activate backup protocols, reconciled records, and kept the financial markets running smooth enough that most people weren’t aware there was ever a problem.
Profits that were never there
Enron was a major energy company that used “creative” accounting to boost profits and overstate assets. Their auditor, Arthur Andersen, signed off on those numbers and both of them were wiped out in the aftermath. The fallout led to the Sarbanes-Oxley Act, which mandates stricter corporate governance and independent audits. A single scandal took out a major energy company and one of the largest accounting firms, yet today, many people have never heard of Enron or have largely forgotten it.
Insurance that was never there
During the Great Financial Crisis, one of the more troubling incidents involved American International Group (AIG). AIG sold a product which was used as insurance. When the markets began breaking, it became clear that AIG and others didn’t have the funds to pay. The government stepped in to support the institutions that were deemed “too big to fail.” It was a frightening period where even Warren Buffet described the country as “looking into the abyss,” but the system recovered, and new tools and regulations now exist to help prevent or manage a similar crisis.
How Is AI Different?
AI doesn’t need to eat or sleep, and unlike a human bad actor, it doesn’t have a conscience holding it back. I’m sure there will be more crises in financial markets and AI will be a part of it. But, unless AI introduces an entirely new category of financial crime, the most likely risk it poses is a familiar one: theft, fraud, or misrepresentation.
What You Can Do to Stay Protected
Because AI makes voice cloning and phishing emails more convincing, protection comes from disciplined protocols:
Establish a Verbal Passphrase: You can set up a code you’d like to use when you call me. We can require that you use the code anytime you want to make changes on your account.
Maintain Periodic Statements: Downloading quarterly or annual account statements provides you with independent, personal documentation of your holdings. You can print these, but recognize you will then need to store them somewhere safe.
Keep Me In the Loop: If I know you have no immediate plans to move money, any sudden transfer request immediately triggers a security hold until we speak directly.
If AI ever advances to the point where it freezes the financial system, deletes records across every major institution, and takes control of everything connected to the internet, I suspect account balances will be the least of our concerns. At that point, we should all be doing our best to help track down John Connor.
If you have any questions about my cyber security protocols, Business Continuity Plan, or any of the articles coming out about potential AI threats, please do not hesitate to contact me.