SEC Director Warns of Storm Brewing Around AI Risk
Commentary by Chuck Hollis
SEC Division of Enforcement Director Gurbir S. Grewal warned about the "storm of risk" brewing around AI and encouraged "proactive compliance" with securities law requirements as they relate to AI.
In his remarks at the 2024 Program on Corporate Compliance and Enforcement Conference, Mr. Grewal promoted (i) education about emerging and heightened AI risk areas as they relate to respective businesses; (ii) engagement with personnel inside a company’s business units to ensure understanding of how AI intersects with activities, strategies, risks and financial incentives; and (iii) updating policies, procedures and internal controls as warranted.
Mr. Grewal emphasized the importance of ensuring that investors are not harmed as AI technology advances. He said, "any time you have individuals or corporations trying to capitalize and profit on FOMO, or the 'fear of missing out,' around a new technology or offering, it should raise red flags for regulators and compliance professionals alike." He warned: "if you are rushing to make claims about using AI in your investment processes to capitalize on growing investor interest, stop. Take a step back, and ask yourselves: do these representations accurately reflect what we are doing or are they simply aspirational?" He further warned against AI-Washing, and, in particular, AI-related disclosures by SEC registrants.
Commentary
A consistent message is being delivered to companies – make sure that you have the internal controls, governance programs and process in place as you move forward with your AI initiatives. Each AI use case will be different, and companies need to be ready to assess each AI use case, determine the attendant risk and implement oversight processes to mitigate and manage these risks. This extends not only into the technology and compliance functions of the company, but the marketing, communications and investor relations functions as well.