It’s out with the new and in with the old for the SEC.
Regulating artificial intelligence in the financial sector is rapidly becoming “job one” for the U.S. Securities and Exchange Commission.
The American public certainly thinks so, and that goes for the entire tech sector and the U.S. government, which will be tasked to regulate an AI technology already well into its ‘Wild, Wild West” phase.
“The concern over the lack of transparency in AI increased in US adults from 69% in 2022 to 77% in 2023,” according to a recent Mitre Harris survey. “When US adults’ trust levels were compared with tech experts on whether they’d be comfortable with the likes of government agencies using AI for decision-making, only 37% of US adults were content compared to 65% of tech experts.”
Yet at a recent symposium at Yale University, SEC Chair Gary Gensler said laws already in existence should be enough to hold financial services companies and investors accountable, especially surrounding client-engaging AI tools.
“We at the SEC take investor education very seriously,” Gensler said. “The robo-advising and brokerage platforms affirmatively put educational material on their site. Their obligation is to ensure that when they do that, it’s accurate and not misleading.”
Stick To The Current Rules
Gensler noted that it’s currently not in the SEC’s purview to make financial services firms offer education to consumers if they decide not to. If those same companies, however, use AI and machine learning models to aid investors in making critical investment calls, Gensler noted companies should abide by basic disclosures with their investment customers.
“Investor protection requires that the humans who deploy a model …put in place appropriate guardrails,” he said. “If you deploy a model…you’ve got to make sure that it complies with the law.”
He noted that more than ever, investment firms and industry professionals should weigh the risks of not being transparent, even when it’s tied to a technology they may not fully understand.
“Companies should ask themselves the basic questions,” Gensler said. ‘Am I discussing AI in earnings calls?’ Am I discussing something consequential or extensive about it with my board? Then maybe it’s material? Perhaps I should tell the public about it,’” he said.
Otherwise, Gensler added, financial firms are risking a “conflict” with the SEC and with tough compliance rules already on the books.
If, that is, they don’t take artificial intelligence-based client disclosures seriously.
Brian O’Connell, a former Wall Street bond trader and best-selling author, is a prominent figure in the finance industry. With a substantial background as an ex-Wall Street trader, he has authored two best-selling books: ‘The 401k Millionaire’ and ‘CNBC’s Creating Wealth’, demonstrating his profound knowledge of finance and investing.
Brian is also a finance and business writer for esteemed national platforms and publications, including CNN, TheStreet.com, CBS News, The Wall Street Journal, U.S. News & World Report, Forbes, and Fox News.
