U.S. SEC launches probe into AI use by investment advisors

SEC Chair Gary Gensler [Photo by EPA / MICHAEL REYNOLDS]

The U.S. Securities and Exchange Commission (SEC), a government agency mandated to regulate the financial industry, recently initiated a probe into the deployment of artificial intelligence (AI) within Wall Street as the European Union (EU) unveiled the world’s first agreement on AI regulation. The agency’s top official also warned businesses against “AI washing” or making false AI-related claims.

The SEC’s Examinations unit sent requests for AI-related data from multiple investment advisory firms to determine how they use and oversee AI, the Wall Street Journal reported.

The 26 details the agency requested included AI-related marketing documents, algorithmic models used to manage client portfolios, third-party providers, and compliance training.

The probe was confidential, according to the SEC spokesperson. Vigilant Compliance, a compliance consulting firm engaged by the SEC for AI-related materials, indicated that the inquiry was a one-time event.

But the investigation sparked a backlash on Wall Street, suggesting that the SEC might be laying the groundwork for potential regulations governing the usage of AI by financial entities, including investment advisors.

In an interview with the Financial Times in October 2023, SEC Chair Gary Gensler warned that decision-making based on AI could pose risks to financial stability.