SEC Advisory Committee Focuses on AI
Commentary by Sebastian Souchet
In separate remarks before the SEC Investor Advisory Committee ("IAC"), Acting Chair Mark T. Uyeda and Commissioner Hester M. Peirce prioritized "the growing impact of artificial intelligence on the securities markets," and "how public companies disclose the risks and opportunities associated with [it]."
In its first meeting, the IAC dedicated significant time to public company disclosure and AI. In her remarks, Ms. Peirce emphasized "the value of principles-based disclosure and the value of affording companies the discretion to make disclosures based on what is material to their particular circumstances." She said that "principles-based disclosure rules do not prescribe corporate disclosure, but instead provide the framework within which companies make material disclosures to investors." She warned that prescriptive disclosure requirements can: (i) waste company resources; (ii) micromanage substantive operations; (iii) distract corporate leadership; and (iv) obscure important information.
Mr. Uyeda emphasized the "speed of development and innovation in the AI space," but said that AI comes "with ... potential risks that should be understood." He thanked the IAC for prioritizing AI and in advance for its recommendations. He also noted that the SEC Division of Economic and Risk Analysis and Division of Examination will be hosting a roundtable on AI on March 27.
Commentary
Acting SEC Chair Uyeda's and Commissioner Peirce's remarks, collectively, reflect the increasing focus of federal financial regulators on regulated firms' (expanding) uses of AI. Given the increased regulatory focus, broker-dealers and investment advisers should ensure that their use of AI is appropriately supervised at enterprise and individual levels, and that AI-related risks are being appropriately identified and mitigated (including accounting for potential and actual conflicts of interest with respect to advisory clients). Moreover, to the extent a company is considering deploying AI technology, it should generally consider whether the functionalities of its AI technology may implicate the US securities laws.