Source: Bloomberg Law

Bloomberg Law – Wall Street institutions are raising red flags about emerging legal and financial risks tied to AI "hallucinations" (false or misleading outputs) and criminal misuse of generative AI, according to compliance experts cited by Bloomberg. AI systems have been shown to produce fictitious facts, fraudulent content, or distorted data, posing significant challenges in sectors like finance where accuracy is critical.

Financial firms warn that without regulation, AI misuse could lead to legal liabilities, reputational harm, or regulatory breaches. There is also concern about AI being used to commit cybercrime, identity theft, or create convincing phishing schemes.

The report emphasizes the need for urgent legal clarity, internal governance frameworks, and collaborative oversight between regulators and private entities. Experts call for new standards to ensure AI models used in finance are explainable, auditable, and legally accountable.