In speeches in July and September, activist SEC Chair Gary Gensler has staked out an alleged case for SEC regulation of the new breed of Artificial Intelligence.  One would not expect to find the SEC delving deeply into AI, other than as part of its normal disclosure regime to make sure that all facts stated are complete and accurate in the offering and trading of securities.  After all, so many other Federal agencies are more closely implicated; witness the recent Executive Order previously reviewed in this space.

And indeed the brief for SEC involvement as stated by Gensler seems rather thin.

Since the data underlying AI can reflect bias, the SEC wants to make sure that potential investors will not be denied access to public markets based on bias in broker-dealer policing.

The SEC sees itself as interested in making sure that anyone’s use of AI does not breach the intellectual property of a third party.  Is that not a disclosure issue covered by current regulation?  And a matter for the courts?

There is a fear that only a few AI providers will achieve AI dominance in providing analytics to investors, causing distortion in the market, a herd effect or causing a recession.  Is this not an anti-trust issue, and how does that differ from the small number of dominant advisory services today?  And what is the alternative if in fact good AI, in everyone’s hands, creates more intelligent investors? Would the SEC ban AI because it is so good at advising?

The SEC already regulates brokers against use of analytics to establish systems that benefit brokers.  Brokers already are required to “know their customer.”  Trading markets should welcome precise analytics. Often accused of being a regulator in search of something to regulate, the SEC seems unhappy at being left at the AI starting gate, as if regulating AI is a race among government agencies.