December 9, 2023

SEC and CFTC Chairs Testify Before House Appropriations Subcommittee
In remarks prepared to be delivered at the National Press Club on Monday, SEC Chairman Gary Gensler said: “AI may exacerbate financial vulnerabilities because it may facilitate similar decisions by individual actors, Because they get the same signal from the underlying model or data aggregator.”

Al Drago/Bloomberg

Wall Street’s top regulator says The proliferation of artificial intelligence Meaning governments may have to overhaul regulation to maintain global financial stability.

Regulators must address the following challenges emerging technologies, SEC Chairman Gary Gensler said. He also reiterated that agency staff are weighing the need for new rules.

In remarks prepared for a speech at the National Press Club in Washington on Monday, he said: “AI may exacerbate financial fragility because it may facilitate individual actors making similar decisions as they learn from underlying models or data aggregators. get the same signal in.”. “While current guidance on model risk management (often written before a new round of data analysis) needs to be updated, it is not sufficient.”

Gensler, who previously taught at the Massachusetts Institute of Technology, has frequently discussed the impact of artificial intelligence on finance since taking the helm of the SEC in 2021. However, with recent advances in the field of artificial intelligence, those questions have become even more important, he said on Monday. These tools are what he calls “the most transformative technology of our time.”

On a more micro level, companies need to be aware of how the use of artificial intelligence might affect compliance with securities rules, he said. Whether it’s used to defraud a company, extract corporate returns or steer investors into buying a particular product, the SEC will be on the lookout, Gensler said.

Listed companies in particular should be wary of misleading investors through company statements and disclosures about the risks and opportunities that artificial intelligence may bring, he said. SEC investigators could benefit from greater use of artificial intelligence in surveillance, analysis and law enforcement, he added.

“The challenge for the SEC is to promote a competitive, efficient market in a situation where capital market centers may be dominant,” Gensler said. “I think we have to evaluate this carefully so that we can continue to promote competition, Transparency and fair market access.”

Financial advisers and brokerage firms also face the prospect of a blow to conflicts of interest that use artificial intelligence to guide clients into buying products, he said. The SEC plans to begin considering new rules on these issues as early as this fall.

“When communication, product availability and pricing can be effectively targeted to each of us, producers are better able to find the greatest willingness for each individual to pay the price or buy the product,” he said.

More broadly, the use of artificial intelligence in business and society is coming under intense scrutiny from the federal government.

The U.S. Federal Trade Commission has begun investigating the impact of OpenAI’s ChatGPT bot on consumer data privacy. The startup is backed by Microsoft. The Biden administration also released a proposal for an “AI Bill of Rights” and guidelines for the ethical use of artificial intelligence by government agencies.