The U.S. Securities and Exchange Commission (SEC) has intensified its oversight of financial institutions that use AI and predictive algorithms. According to the SEC, its proposed regulatory measures signal its intent to ensure that AI applications are used in a manner that safeguards the interest of investors and maintains market integrity. However, SEC Commissioner Hester Peirce was scathing once again of what she sees as the Commission’s “distorted thinking”, referring to her belief that Chair Gensler’s approach is that investors can’t think for themselves. She goes a step further when she makes the accusation that the proposal “reflects a hostility toward technology”, highlighting that this antagonism is directed at predictive data analytics (PDA) such as AI, machine learning, or deep learning algorithms, neural networks, natural language processing (NLP), as well as other technologies. She disregards the SEC view that it is “neutral” on technology by saying: “Requiring firms to subject certain types of technologies to a uniquely onerous review and conflict remediation process is not technology neutral. Let us be honest about what we are doing here: banning technologies we do not like.” Peirce also rejected the SEC dismissive approach to disclosure within the proposal, when it makes the assumption that “disclosure is of no use to investors”, remarking that “the whole premise of our disclosure regime is that investors can think for themselves.” She makes the case that the proposal just doesn’t take into account “operational feasibility”, saying that broker dealers and investment advisors would have to carry out a “conflict identification process” with “Eye-wateringly detailed written policies and procedures” for evaluating potential conflicts and how they would be dealt with. Once again, Hester Peirce has taken her own agency to task for what she sees as an over-complicated proposal that is likely to put smaller businesses off of using the technologies in question, and in her view is generally not needed. Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
