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US SEC Chair Gensler Condemns “AI Washing” In Financial Sector
US Securities and Exchange Commission (SEC) chair Gary Gensler recently denounced the practice of “AI washing” within the financial sector. This term refers to the misuse of artificial intelligence (AI) technology, which may breach securities laws, according to Gensler.
Gensler’s remarks were made on March 18 in conjunction with regulatory action taken by the SEC against instances of AI washing. This behavior occurs when individuals in finance make false assertions about their utilization of AI.
The Phenomenon of AI Washing
Gensler cautioned that investment advisers and broker-dealers might falsely claim to employ AI for achieving higher investment returns. Additionally, executives of publicly traded companies could seek to boost stock prices by highlighting their AI applications.
“Here at the SEC, we want to make sure that these folks are telling the truth. In essence, they should say what they’re doing,”
Gensler stressed the importance of accuracy in all disclosures related to AI deployment. He noted that AI technology holds immense transformative potential, similar to the impact of the internet, and is already enhancing inclusion, efficiency, and user experience in the financial system.
Recent SEC Actions
Gensler’s comments coincided with the SEC’s filing of new cases and settlements tied to AI washing.
The SEC brought charges against and reached settlements with two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., for making misleading claims about their use of AI.
Delphia alleged that it leveraged AI alongside data to predict successful companies for early investment. Conversely, Global Predictions falsely asserted to be the “first regulated AI advisor” offering expert AI-driven forecasts.
“Neither of the firms had the AI capabilities that they claim they had… simply put, that’s called AI washing, and it hurts investors,”
Delphia and Global Predictions agreed to pay civil penalties of $225,000 and $175,000, respectively, as part of the settlement. Both companies were found to have violated the Advisers Act’s Marketing Rule and other securities regulations.
While the SEC proposed rules to govern AI use in financial markets in 2023, progress has been hindered by opposition in the Senate.
Source: CryptoSlate
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