Securities and Exchange Commission Chair Gary Gensler said Monday that his agency is both pleased and disappointed with a court ruling that Ripple Labs's XRP token was not necessarily a security but implied that crypto exchanges aren’t off the hook for complying with SEC regulations.

"There’s ongoing litigation with a number of these crypto platforms and these platforms are commingling a number of services that you’ve seen on these crypto platforms where they could well be trading against their customers, bundling up a bunch of services that we would not allow in any other parts of our capital markets," Gensler told Yahoo Finance in an exclusive interview.

The interview was his first since a judge ruled last Thursday that the XRP token issued by Ripple was a security when sold to institutional investors but not to the general public. The SEC sued Ripple in 2020, alleging that the sale of XRP was an unregistered securities offering.

The judge's reasoning was that the institutional investors "would have purchased XRP with the expectation that they would derive profits from Ripple’s efforts."

Gensler says the agency is "pleased" with the part of the decision ruling that the token was a security when sold to institutional investors but "disappointed in other aspects about retail investors."

"In terms of the decision," he added, "we’re still taking a look at it."

The risks of AI

Gensler also warned Monday about the risks posed by artificial intelligence, noting that a limited number of companies control much of that technology. If one of them were to run into trouble, that could threaten the stability of the financial system.

"AI may heighten financial fragility as it could promote herding with individual actors making similar decisions because they are getting the same signal from a base model or data aggregator," he said. "It also could exacerbate the inherent network interconnectedness of the global financial system."

Gensler said many of the challenges to financial stability that AI may pose in the future will require new thinking on regulatory interventions. He said risk management guidance will need updating and won’t be enough in its current form.

"It’s quite possible that a financial crisis of the late 2020s or the 2030s, the after-action report will say, we didn’t know everyone was relying on the same base or foundation model for their mortgage information or their stock market information," he said.

Gensler says the AI models are hard to explain and complex and that there needs to be a serious conversation among financial regulators around the globe due to the growing reliance on the models and their integration with global capital markets.