The U.S. Securities and Exchange Commission (SEC) has enacted a new set of regulations for financial services that use artificial intelligence.
The SEC’s proposal is intended to address possible conflicts of interest that may arise due to businesses using AI, predictive data analytics, and related technologies.
Although the SEC accepted that AI and predictive technology implementations could be “optimized for investor interests,” it also cautioned that investors could suffer harm if businesses prioritize their interests above those of their customers.
As a result, the plan outlines several rules that businesses may be required to adhere to. These businesses would have to recognize, get rid of, or mitigate the impact of conflicts of interest involving AI and predictive analytics.
These businesses must also keep records and develop written policies and processes for compliance. If adopted, the rules will apply to all broker-dealers and investment advisers presently employing or anticipating using modern technology in their contacts with investors.
This includes any connected people. These entities are registered under section 203 of the Investment Advisers Act of 1940.According to the SEC, the proposed AI laws may or may not apply to cryptocurrency exchanges.
However, the SEC has stated that alternative trading platforms that deal in digital assets are “subject to regulatory requirements, including registering with the SEC as a broker-dealer” since at least 2018.
The SEC approved the proposal to introduce the AI regulations, although two commissioners—Mark Uyeda and Hester Peirce—voted against it. On July 26, Peirce said the idea “exhibits hostility toward technology and disclosure.”
She emphasized that the SEC has adequate authority to enforce regulations while expressing concern that the rule would be enforced too widely.
Peirce is renowned for being open to cryptocurrencies and other cutting-edge financial technology, and this attitude also applies to applications of AI. Two more votes were cast by the SEC.
A proposal to exempt some online advisers was the subject of one vote, and all five voting members approved it. The other vote involved a final rule requiring businesses to disclose cyberattacks; it was approved 3-2 with Peirce and Uyeda voting against it, and it went into force.
