Artificial intelligence (AI) has become a hot topic in the world of financial markets, with a particular focus on large language models like ChatGPT. This growing interest has caught the attention of financial regulators in Washington, who are closely monitoring the situation.
Gary Gensler, the Chair of the Securities and Exchange Commission (SEC), recognizes the significance of AI technology and its impact on the financial industry. In a recent speech at the National Press Club in Washington, D.C., Gensler stated that he considers AI to be as transformative as the internet and mass production of automobiles.
Gensler acknowledges that the rapid adoption of AI technology by investors, exchanges, brokers, and other market participants has prompted the need for regulatory intervention. He has directed his staff to study the issue and propose rule changes to ensure fairness in markets.
One key concern is the potential for AI technology to influence customer behavior through personalized product offerings and pricing. This could exacerbate historical biases against certain races, genders, or other protected groups. The opacity of AI algorithms also poses challenges for regulators and technology operators in understanding and addressing discriminatory AI behavior.
Gensler emphasizes that financial advisers and brokers must always prioritize their clients’ best interests. Incorporating AI technologies into their services should not compromise investor welfare.
In summary, as AI continues to reshape the financial landscape, it is crucial for regulators to adapt and safeguard market fairness.
SEC Takes Action to Prevent Financial Companies from Misleading Customers
The Securities and Exchange Commission (SEC) has committed to finding ways to protect customers from being directed towards financial products that benefit companies at the expense of clients, according to Chairman Gary Gensler.
One initiative currently under review by the SEC is an application from the Nasdaq stock exchange to introduce a new “dynamic” order type that utilizes artificial intelligence (AI) to adjust order terms in real time. The Nasdaq believes this technology will enhance its ability to fulfill client orders while minimizing the impact on market prices.
However, Chairman Gensler has expressed caution about the potential conflicts of interest that AI could pose. He is concerned that AI systems may prioritize the platform’s interests over those of the customer. As a result, he has instructed SEC staff to develop rule recommendations addressing these conflicts in various investor interactions.
Furthermore, Gensler has raised important concerns about AI tools being used to manipulate elections, capital markets, or provoke public panic. He even drew a comparison to Orson Welles’ infamous 1938 radio broadcast of “War of the Worlds,” which caused mass hysteria by convincing listeners that a Martian invasion was happening.
Highlighting the potential impact of AI on financial stability, the SEC chair voiced apprehension that AI’s influence could lead to herding behavior, where individuals make similar decisions based on identical signals from AI technologies. This could amplify the interconnectedness of the global financial system and exacerbate existing vulnerabilities.
It is clear that the SEC is committed to ensuring that AI technologies are used responsibly in the financial industry, prioritizing the interests of customers and maintaining stability within the market.