As more companies incorporate the use of artificial intelligence into their practices, regulators are taking steps to address the growing trend, according a report in Better Markets.
One example cited was the Securities and Exchange Commission’s 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.
But the report calls for more action to be taken to keep pace with the rapid growth of AI in order to protect investors and overall financial stability. “Specifically, we will need affirmative regulatory standards beyond mere disclosure, enhanced enforcement, and substantially more resources and expertise for regulators to keep pace with the efforts of a well-funded and highly motivated private sector to develop ever more advanced AI systems,” the authors note.
Better Markets has generally advocated for tougher financial rules and regulations. “’AI demands a new approach to financial regulation, one that effectively incorporates agile and forward-looking regulatory frameworks and a focus on consumer protection, ethics, transparency, accountability, and financial stability,’ Better Markets legal director Stephen Hall said.”
Financial advisors have been increasingly incorporating the use of artificial intelligence into their practices to maximize its positive impact. The advantages of Generative AI have become clear to firms as the technology has grown more advanced in recent years. Forbes has previously reported that 85% of financial institutions currently use artificial intelligence in some capacity, including for detecting fraud and predicting cash flow events.
According to the Better Markets report, the five largest investment banks filed 94 percent of AI related patents between 2017 and 2021, published two-thirds of the AI research papers, and accounted for half of AI investments. Experts expect that financial institutions’ spending on AI will double from 2023 to 2027, eventually surpassing $400 billion. But the report also notes the risk AI applications can pose for investor exploitation, fraud, and other illegal conduct.
SEC Chair Gary Gensler has urged firms not to make false or misleading claims regarding the use of AI technologies. He said those engaging in “AI-washing” could be subject to enforcement action by making unsubstantiated marketing statements about the benefits of AI. He said such false claims are prohibited by securities laws and that companies are required to make full, fair and truthful disclosures about their products.
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