SEC Chair Gensler Warns of Conflicts of Interest in AI
Commentary by Chuck Hollis
SEC Chair Gary Gensler highlighted growing concern around conflicts of interest in AI and warned that AI-powered algorithms might influence investment decisions to the advantage of the financial platforms that use them.
In a video as part of his "Office Hours" program, Mr. Gensler explained that AI is fundamentally about using mathematics, data and computational power to recognize patterns and make predictions. He pointed out that companies are increasingly employing AI to individually target or personalize messages, pricing, and products, particularly in the financial sector, where "robo-advisors and brokerage applications" utilize such algorithms.
He warned that AI-driven predictive analytics are becoming more pervasive, subtly influencing consumer behavior by tracking how individuals might respond to specific prompts, products, or pricing. Mr. Gensler said that AI systems may exploit such subtle preferences in the interests of the platforms to the detriment of investors.
Commentary
SEC Chair Gensler continues to focus on the use of AI by financial services firms and the harm that its use can cause to consumers and investors. Financial services firms need to hear his words of caution and ensure that they have strong AI governance programs in place. These companies need to not only be testing and verifying the AI platforms and their output at development and implementation, but periodically over time to ensure that the platforms continue to perform as expected and have not changed over time to cause harm to consumers and investors.