Representing financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations nationwide.

SEC using AI as part of surveillance and enforcement, Gensler says

On Behalf of | Sep 21, 2023 | Financial News

Securities and Exchange Commission Chair Gary Gensler has provided new details about the commission’s use of artificial intelligence, according to a report by CoinTelegraph.

Gensler addressed the topic in his testimony on Sept. 12 before the U.S. Senate Committee on Banking, Housing and Urban Affairs.

He confirmed that the SEC has been utilizing AI as part of its ongoing efforts to detect fraud and wrongdoing in the financial industry. In an exchange with Nevada Sen. Catherine Cortez Masto, Gensler said the SEC has used AI “in some market surveillance and enforcement actions. To look for patterns in the market…It’s one of the reasons why we’ve asked Congress for greater funding this year, in 2024, to help build up our technology budget for the emerging technologies.”

The disclosure followed previous remarks in July before the National Press Club in which Gensler said AI technologies could strengthen the SEC’s efforts with regards to market surveillance, disclosure review, exams, enforcement, and economic analysis.

During his testimony before the Senate committee, Gensler warned that artificial intelligence could also threaten financial markets through the potential to generate fraudulent and deceptive content. “We have good laws, but these new technologies will challenge those laws,” Gensler said.

The SEC recently proposed new rules regarding the use of predictive data analytics and artificial intelligence to interact with investors. Specifically, the rules would require broker-dealers and investment advisers to take certain steps to address conflicts of interest associated with their use of these technologies in order to prevent firms from placing their interests ahead of investors’ interests.

At the Senate hearing, Gensler pointed out the need for such rules regulating predictive data analytics models. “Such analytics and narrowcasting have the potential benefits of greater financial inclusion and enhanced user experience,” he testified. “This also raises the possibilities that conflicts may arise to the extent, for example, that advisers or broker-dealers are optimizing to place their interests ahead of their investors’ interests. If a firm’s optimization function takes the interest of the firm into consideration as well as the interest of the investor, this can lead to conflicts of interest.”

He said the SEC currently has 47 proposals on its agenda, and is updating its rules to promote efficiency, integrity and resilience in the financial markets.

The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. Our attorneys fully understand the regulatory scrutiny financial professionals and their firms face from the various regulators that oversee the financial services industry. If your firm is facing an investigation from a regulatory agency, please contact Lewitas Hyman at (888) 655-6002 or through our online contact form.