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The Securities and Exchange Commission (SEC) is taking steps to regulate the use of artificial intelligence (AI) tools by leveraging its existing authorities, according to SEC Chair Gary Gensler. In a speech delivered to the National Press Club, Gensler highlighted the challenges posed by AI technology and emphasized the need for appropriate oversight.
Gensler stated that the SEC remains neutral towards technology but focuses on the outcomes and implications of its use, drawing an analogy with calculus. However, he acknowledged that the application of securities laws could be relevant depending on how AI technology is utilized.
One significant challenge highlighted by Gensler is the potential for bias when AI models are employed in determining outcomes such as job placements, loans, credit assessments, school admissions, and healthcare decisions. The predictive algorithms used in AI systems may perpetuate historical biases present in the underlying data.
Gensler also raised concerns about the use of AI by financial advisers and brokers, as it could lead to conflicts of interest where their interests supersede those of investors. This would contravene the rule that mandates prioritizing the best interests of clients and retail customers. To address this issue, Gensler has requested SEC staff to propose rule recommendations that tackle potential conflicts across various investor interactions.
Furthermore, Gensler cautioned about the misuse of AI by fraudsters, who can exploit the technology to personalize communications and deceive the public. He also highlighted the possibility of AI being used to manipulate capital markets. Public companies were urged to be transparent and avoid misleading investors when discussing the opportunities and risks associated with AI.
Gensler reaffirmed the SEC’s commitment to combatting fraud in all its forms, emphasizing that securities laws apply to fraudulent activities, regardless of whether they involve AI or other means. The SEC remains focused on protecting investors, promoting capital formation, and ensuring the integrity of the markets.
Coinciding with Gensler’s speech, the Consumer Financial Protection Bureau (CFPB) and the European Commission (EC) initiated an “informal dialogue” on the digitalization of the financial services sector, including the use of AI for decision-making automation. The digital transformation of financial services carries broad implications for businesses and consumers, encompassing areas such as pricing, customer service, competition, and privacy, as highlighted by EC Commissioner for Justice and Consumer Protection Didier Reynders and CFPB Director Rohit Chopra.
As the SEC moves forward with developing rules for AI use, it aims to strike a balance that ensures the benefits of AI while addressing potential risks and protecting the interests of investors and market integrity.
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