The SEC announced that it has accepted a recommendation on the use of artificial intelligence with brokerage firms.
The SEC has issued some warnings against the possible dangers of artificial intelligence in the past. That said, the agency also said it’s closely scrutinizing major AI companies.
SEC accepts ‘conflict of interest’ agreement with brokerage firms for artificial intelligence
The SEC has passed new “conflict of interest” rules governing how brokerages can use artificial intelligence. These new rules will govern how brokers can use “optimization functions” to target investors and determine their investment strategy.
While defending the changes, SEC Chairman Gary Gensler stated that these rules, which aim to prohibit brokers from using “optimization functions” or data analytics tools, are aimed at avoiding conflicts of interest. These new regulations aim to reduce conflicts of interest in the processes of interacting and communicating with investors.
The SEC stated that the technologies covered include a firm’s analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes. Regulations are being introduced as the use of these technologies may create a conflict of interest when interacting with investors.
We have an upcoming @SECGov Open Meeting on July 26 | 10am ET
We’ll be discussing:
1⃣Cybersecurity Risk Management, Strategy, Governance, & Incident Disclosure
2⃣Use of Predictive Data Analytics
3⃣Exemption for Certain Internet Advisers From the Prohibition Against Registration— Gary Gensler (@GaryGensler) July 20, 2023
The proposed rule changes were passed by 2 votes to 3 and were opposed by Commissioner Hester Peirce and Republican Commissioner Mark Uyeda. The updates will apply to cryptocurrency and digital asset transactions through SEC-registered broker-dealers.
The purpose of these regulations is to ensure the protection of investors and to promote the ethical use of artificial intelligence and data analytics tools. Citizens will be able to submit their comments for 60 days after the updates are published in the Federal Register, and the committee will hold the final vote.
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