InfoBytes Blog
SEC Chair Gensler weighs in on AI risks and SEC’s positioning
On February 13, SEC Chair Gary Gensler delivered a speech, “AI, Finance, Movies, and the Law” before the Yale Law School. In his speech, Gensler spoke on the crossovers between artificial intelligence (AI) and finance, system-wide risks on a macro-scale, AI offering deception, AI washing, and hallucinations, among other topics.
Gensler discussed the benefits of using AI in finance, including greater financial inclusion and efficiencies. However, he highlighted that the use of AI amplifies many issues, noting how AI models can be flawed in making decisions, propagating biases, and offering predictions. On a system-wide level, Gensler opined how policy decisions will require new thinking to overcome the challenges to financial stability that AI could create. Gensler addressed AI washing, stating that it may violate securities laws, emphasizing that any disclosures regarding AI by SEC registrants should still follow the “basics of good securities lawyering” for disclosing material risks, defining the risk carefully, and avoiding disclosures that could mislead the public regarding the use of an AI model. Lastly, Gensler warned about AI hallucinations, saying that advisors or brokers are not supposed to give investment advice based on inaccurate information, closing with “You don’t want your broker or advisor recommending investments they hallucinated while on mushrooms.”