SIFMA Urges Regulators to Avoid AI-Specific Rules

In a white paper, the Securities Industry and Financial Markets Association and the SIFMA Asset Management Group (collectively "SIFMA") said regulators and policymakers should not adopt AI-specific rules, but should apply existing rules and guidance to the deployment of AI models.

In the white paper, SIFMA recommended a balanced, technology-neutral approach to promote innovation while ensuring the integrity and safety of financial markets. SIFMA recommended state and federal legislators and regulators consider the following before establishing policy on the use of AI in the financial industry:

• Focus on Activities and Outcomes. Existing laws and regulations in the financial services sector should remain focused on governing activities and outcomes, rather than on the specific technologies used. This "technology-neutral" approach allows innovation within the industry without compromising market safety or stability.
• Don't Overhaul Existing Regulations; Don't Create AI Specific Regulation. The current regulatory framework has successfully managed other emerging technologies in the past, and SIFMA argued it is sufficiently robust to address the challenges posed by AI. 
• Don't Adopt a Fixed AI Definition. Given that AI is still evolving, it is premature to adopt a precise legal definition of AI. Further, "adopting a technology-neutral approach to the use of AI will likely render a definition unnecessary."
• Engage in a Collaborative Approach. There is a need for regulators and policymakers to work closely with financial firms to better understand how AI is being used, including its potential benefits and risks. Such collaboration will help ensure that any regulatory actions are informed by practical industry insights. 
• Don't Adopt Prescriptive Rules. Any regulatory action regarding AI should remain adaptable to the rapidly evolving nature of the technology. Overly prescriptive rules could create inconsistencies between different jurisdictions and stifle innovation that could benefit market participants, including investors.
• Firms Must Retain Flexibility in Risk Management. Financial services firms are best positioned to identify and manage risks related to AI. They should retain the flexibility to decide how to address AI's potential impacts based on their specific business models and circumstances.
• Consider Impact on Broader Legal Frameworks. Evaluate how existing areas of law, such as data privacy and copyright, intersect with the use of AI in financial services. These areas may require attention to mitigate any potential risks related to AI usage.