Worried that the SEC might overregulate businesses’ use of artificial intelligence (AI), thereby stifling innovation and reduce its benefits, the U.S. Chamber of Commerce asked the agency to hold roundtables and issue a preliminary rulemaking document—a concept release—to broadly solicit input on potential issues with AI.
Today, many companies already use sophisticated technology to boost productivity and competitiveness.
“As with any new technological advance, it is important to recognize the benefits, identify any potential adverse consequences, and for regulators to put in place appropriate safeguards when needed,” Tom Quaadman, an executive vice president with the chamber, wrote to SEC Chair Gary Gensler on January 30, 2024.
An independent commission formed by business group found that many AI activities are already covered by existing laws or regulations. The panel in Mach 2023 recommended five pillars for addressing potential gaps in AI regulation: efficiency, neutrality, proportionality, collegiality, and flexibility.
“Policymakers should follow a risk-based approach when it is necessary to fill regulatory gaps,” Quaadman wrote.
He said that AI presents both “incredible” opportunities and “potential” challenges in the financial sector. A World Economic Forum survey found that 85% of financial services firms use AI.
“Your recent speeches have previously expressed concerns about the potential financial stability risks of AI in financial markets, and AI is a primary investor protection concern raised in the ‘Predictive Data Analytics’ Rule recently proposed by the Commission,” Quaadman said.
During a conference in July last year, Gensler said that AI will be the most transformative technology in our time just as the internet or automobiles were in prior eras.
As demonstrated time and time again, ChatGPT has not been perfect, however. While emphasizing benefits of AI in driving efficiency, there is potential to cause harm, he said. Thus, Gensler believes that regulators, including the SEC, have a role to play in making sure that the public is protected.
As Gensler has often said in response to questions about regulation of crypto assets, he said that the agency is technology neutral, emphasizing its mission to protect investors; maintain fair, orderly and efficient markets; and facilitate capital formation.
“The ChatGPT and other AI models, the conflicts that can arise if robo-advisers consider their interest ahead of yours,” Gensler explained in response to a question about how the SEC will balance the need for technological innovation and effectively regulate the securities market.
Gensler has used the term AI-washing to warn against fraud, explaining again that when companies raise money from the public, they must provide fair and truthful disclosures.
“We have found over the decades when new technologies come along, sometimes there’s an investor interest... and a buoyant interest at times. And so issuers really have to be careful to be truthful about what they are saying about their claims if they're using artificial intelligence and what they are saying their use of it is, but also truthful about the risks and how they are managing their risks,” Gensler said more recently.
He emphasized that there is already a lot AI already built-in to financial markets.
“But what you are talking about is ‘can you use artificial intelligence in illicit ways and crime,’ isn’t new. Fraud isn’t new; the tools of fraud and crime may be new,” Gensler said at a conference in mid-January, warning that some may mislead the public with deep fake or other AI tools.
“Eight or 10 months ago, somebody even put a fake blog out that was purportedly AI-generated about whether I had resigned my job,” he provided more context. “And that had a little boost to some parts of the market and probably worse in other parts of the market.”
He said humans are behind AI software, and they need to make sure that their models are not misleading the public by implementing guardrails so that AI does not manipulate the market traditionally such as front running or “faking out the market.”
But the chamber put a much greater emphasis on the benefits of AI when combined with proper oversight. Quaadman said that it has the potential to revolutionize the markets by improving efficiency, enhancing decision-making, and strengthening risk management, among other benefits.
Noting that other countries are not stopping technological innovation, he emphasized that it is important for the US to be the leader in AI to bolster competitiveness in capital markets.
“Finally, AI is not inherently risky,” Quaadman said. “The risks often arise, as is true with other market tools, from misuse, manipulation without proper safeguards and understanding.”
Thus, he said the SEC should clearly understand the role of AI in the marketplace. Besides holding roundtables and issuing a concept release, the chamber also recommended the following actions that the commission should take:
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