The Securities and Exchange Commission (SEC) Chair, Gary Gensler, recently criticized the practice of “AI washing” in the financial sector, highlighting the potential violations of securities laws associated with false claims about the use of artificial intelligence (AI).
Gensler’s remarks on March 18 shed light on the deceptive practices employed by some investment advisers and broker-dealers who falsely tout their use of AI to attract clients and investors. By claiming that AI can generate higher investment returns or improve stock prices, these individuals and companies engage in misleading marketing tactics that could harm unsuspecting investors.
While recognizing the transformative potential of AI technology in enhancing inclusion, efficiency, and user experience within the financial system, Gensler emphasized the importance of transparency and accuracy in all claims made by market participants. He underscored the SEC’s commitment to ensuring that individuals and companies are truthful about their AI capabilities and applications.
In response to the prevalence of AI washing, the SEC has taken decisive legal action against companies that have misled the public about their AI-related offerings. In particular, the SEC charged and settled with Delphia (USA) Inc. and Global Predictions Inc., imposing civil penalties on both firms for making false and misleading statements about their use of AI.
SEC Enforcement Director Gurbir Grewal expressed concern over the lack of AI capabilities possessed by Delphia and Global Predictions, labeling their actions as AI washing and emphasizing the detrimental impact on investors. The settlements reached with the companies included significant civil penalties and highlighted the consequences of violating securities regulations.
While the SEC has proposed rules to regulate the use of AI in financial markets, opposition in the Senate has stalled the progress of these regulations. Despite ongoing challenges, Gensler’s proactive stance against AI washing signals a broader commitment to upholding the integrity and transparency of the financial sector.
The SEC’s crackdown on AI washing serves as a reminder to market participants to uphold ethical standards and accurately represent their use of AI technology. By promoting truthfulness and accountability, the SEC aims to protect investors and maintain the credibility of the financial markets.