Technology

SEC Chief Highlights Need for Regulations to Govern AI Use on Trading Platforms

© Thomson Reuters 2023

The Chair of the US Securities and Exchange Commission (SEC), Gary Gensler, emphasized the importance of developing rules to regulate the use of artificial intelligence (AI) on trading platforms. In a recent speech, Gensler highlighted the risks of conflicts of interest associated with AI implementation and the challenges posed to financial stability by emerging technologies. As part of the government’s efforts to foster responsible innovation while ensuring public safety, the SEC is actively working on regulatory proposals to address these concerns.

The Dangers of Conflicts of Interest:

Gensler acknowledged the potential conflicts of interest arising from AI systems employed by trading platforms. If these systems consider the interests of both the platform and its customers, conflicts can arise, jeopardizing fair and transparent trading practices. To combat this issue, Gensler revealed that he has assigned SEC staff the task of formulating new regulatory recommendations to mitigate conflicts of interest in AI-driven trading platforms. By doing so, the SEC aims to strike a balance between technological advancements and maintaining market integrity.

AI’s Impact on Financial Stability:

In addition to conflicts of interest, Gensler highlighted the interconnectedness of the global financial system and its vulnerability to potential disruptions caused by AI. As technologies like predictive analytics and machine learning become more prevalent, traditional risk management models may prove insufficient. Gensler called for “new thinking” and the exploration of system-wide or macro-prudential policy interventions to address the challenges to financial stability that AI may present in the future.

SEC’s Regulatory Agenda:

The SEC has already set its sights on addressing the risks associated with AI implementation in the financial sector. In its agenda for developing new regulations, the commission is considering proposals aimed at governing conflicts of interest arising from the use of AI and machine learning by investment advisers and broker-dealers. These regulatory measures, expected to be unveiled later this year, reflect the SEC’s commitment to proactive oversight and ensuring responsible innovation in the financial industry.

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Conclusion:

As technology continues to reshape the financial landscape, regulators such as the SEC recognize the need to strike a balance between harnessing the benefits of AI and managing the associated risks. Gary Gensler’s recent remarks highlight the SEC’s commitment to addressing conflicts of interest in AI-driven trading platforms and their dedication to exploring novel approaches to maintaining financial stability in the face of technological advancements. By developing comprehensive regulations, the SEC aims to promote responsible innovation and safeguard the integrity of the financial markets in the era of AI.

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