New Rules on AI Use in Brokerages: The US Securities and Exchange Commission (SEC) is gearing up to implement fresh regulations aimed at brokerages that utilize artificial intelligence (AI) to interact with clients. The move, set to be introduced as early as October, will address concerns about conflicts of interest associated with the technology and will also encompass predictive data analytics and machine learning. SEC Chair Gary Gensler, who has consistently raised doubts about whether brokers prioritize their clients’ best interests, highlighted the potential conflicts arising from certain new technologies employed by financial professionals.
Evolving with the Changing Landscape
In a statement released on Tuesday, Gensler emphasized the need for the SEC’s work to evolve in tandem with the changing landscape of technology, markets, and business models. The SEC began examining potential conflicts linked to these technologies back in 2021, while robo-advisers, brokerages, and wealth managers have been exploring ways to personalize marketing, pricing, and prompts for individual consumers. Despite the surge in media attention surrounding AI tools, the US government has yet to establish a comprehensive approach to address these new technologies. Earlier on Tuesday, Rohit Chopra, the country’s top consumer watchdog, expressed concerns about the potential for increased fraud and discrimination in finance if AI is left unchecked.
Cracking Down on AI Use in Brokerages
The forthcoming proposal to regulate the use of AI by brokerages was included in the SEC’s semi-annual rule-writing agenda, which encompassed numerous other regulatory plans. The SEC plans to propose that more robo-advisers, or internet advisers, register as money managers with the agency, subjecting them to additional regulatory requirements. Additionally, the SEC is considering mandating large brokers to calculate their customer reserve deposit requirements on a daily basis rather than weekly.
These new regulations highlight the SEC’s commitment to adapting its oversight to address the evolving landscape of AI and emerging technologies in the financial sector. By targeting conflicts of interest and enhancing regulatory requirements for AI-driven brokerages, the SEC aims to safeguard the best interests of clients and ensure a more transparent and accountable financial environment.
