SEC’s Chair Optimistic AI Could Strengthen Enforcement
The US Securities and Exchange Commission (SEC) chair that leveraging artificial intelligence (AI) could facilitate its market surveillance. Gary Gensler admitted that integrating AI-powered systems could benefit the staff.
Gensler revealed his support for AI integration in SEC’s surveillance during the Monday, July 17 press conference. His address in the National Press Club marked the initial speech since Ripple’s court ruling delivered by Judge Analisa Torress.
Gensler downplayed the court’s opinion in mandating SEC’s enforcement approach. Instead, he cites several potential use cases in AI-powered systems that could facilitate the regulator’s discharge of its securities watchdog’s role.
SEC Open to Integrate AI in Conducting Market Surveillance
Gensler indicated that the SEC could utilize AI to execute market surveillance and economic analysis. Also, the AI-powered system could ease disclosure reviews, enforcement analysis, and exams.
Gensler’s support for AI integration coincides with the revelation that the SEC crackdown on crypto has hit over 54 firms. The number represents a relatively significant number from 2018 to mid-2023. However, the regulators seem to heighten the enforcement from mid-2022 to 2023 following the collapses of major crypto operators.
Besides Celsius, The crypto industry witnessed the sudden implosion of Three Arrows Capital (3AC) and, notably, FTX collapse in November 2022. The collapse of Sam Bankmanfried-led FTX prompted SEC to accelerate the crackdown resulting in multiple victims of its enforcement actions.
Speed and Improved Efficiencies Convinces SEC’s Chair of AI Use
Gensler’s speech was elusive, providing details on how and when the agency desires to deploy AI. Instead, the chair lauded the technology’s positive impact it could have on financial markets.
The SEC chair opined that AI optimizes opportunities to solve the most daunting puzzles in finance, healthcare, and healthcare.
He admitted that AI leverages the training of machines on pattern recognition. Scaling this capability yields great efficiencies for time-consuming activities across the economy. Gensler confessed that the existing AI models have proved to be the transformative technology that matches the impact of the internet and automobile mass production.
Generative AI Vulnerable to Misinformation, Bias and Conflicts of Interest
Gensler decried that the presence of bias and deception masks the positive sentiments of many AI systems. He regrets that AI models have portrayed vulnerability to infringing privacy rights while exposing various parties to conflicts of interest.
SEC leaders indicated that predictive AI models demonstrate susceptibility to bias. Gensler indicated that predictive AI models can reflect historical biases, making them less accurate. Reliance on output from the false prediction would leave the agency formulating or deploying ineffective solutions to existing challenges.
Gensler revisited the vulnerability of AI-generative models by citing the misinformation of his resignation. He admitted that the misinformation affected many media platforms as the false resignation spread across the internet.
Gensler warns that conflicts of interest will arise whenever the AI systems training leans towards addressing the company’s interests. By doing so, the pursuit of customers’ interests becomes compromised.
Gensler added that such possibilities constitute the reason for tasking the agency staff to issue recommendations on rule proposals. The suggestions would constitute the basis for the commission’s consideration of addressing the potential conflicts relative to diverse investor interactions.
SEC Ready to Pursue Criminals Leveraging AI to Defraud Investors
The SEC chair warns that the AI segment could see a few monopolies emerging. Such eventualities could leave the economy vulnerable to suffering a financial crisis in the future.
A subsequent interview Gensler held with Yahoo Finance on Monday, July 17, captured the chair’s criticism of AI use to orchestrate malicious acts. He revealed his determination to pursue culprits leveraging AI to defraud investors.
Gensler termed fraud as warranting action irrespective of the form. He emphasized that SEC is authorized and mandated by Congress to pursue bad actors leveraging artificial intelligence to deceive the public.
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