Let’s read some tea leaves, shall we?
Last week, the Securities and Exchange Commission held a roundtable on AI in finance, to chart both the risks and benefits of AI adoption in the financial industry. For anyone curious about what kind of approach the current administration may take on AI, these are the remarks you’ll want to analyze (or overanalyze, if that’s your style).
When it comes to other emerging tech, like crypto, the Trump-era SEC has been keen on reversing the crackdown and caution seen during former SEC chair Gary Gensler’s term.
The March roundtable, by contrast, was billed as a reset. It was about backing up, getting definitions in place, taking stock of where things are, and considering where they might be going. But a reset from what, you may ask—and the answer is still Gensler.
On the topic of AI in finance, Gensler made his skepticism clear, warning of troubling scenarios in which overreliance on AI algorithms in investment decisions could rattle the market. “I would be quite surprised if in the next 10 or 20 years a financial crisis happens and there wasn’t somewhere in the mix some overreliance on one single data set or single base model somewhere,” the former chair told Politico.
The current top brass at the SEC are less alarmist, while still cautious about potential risks.
Acting Chair Mark Uyeda kicked off the day with remarks on the long history of tech incorporation into financial markets, “from stock ticker machines to telephones to computerized networks.”
“Our ability to innovate is a fundamental reason why our cost of capital tends to be the lowest in the world, and why our capital markets are unmatched in terms of size, depth, and liquidity,” Uyeda stressed. Given that history, Uyeda said he believes “financial regulators should be taking a technology neutral approach to regulation.”
“I’ve been concerned with some recent commission efforts that might effectively place unnecessary barriers on the use of new technology,” he said. “Thus we should avoid an overly prescriptive approach that can lead to quickly outdated, duplicative rules; a check-the-box approach to compliance; and impediments to innovation.”
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Ultimately, Uyeda said he wants to see “a common-sense and reasoned approach to AI and its use in the financial markets and services.”
Similarly, Commissioner Hester Peirce said she wants the commission to move forward in a more level-headed way, noting the “sensationalist” manner in which both proponents and opponents of AI discuss the technology.
“The increasing use of artificial intelligence in the financial industry has not been immune from such thinking, and regrettably, the commission fell victim to that sensationalism when it attempted to broadly and clumsily regulate the use of predictive data analytics by broker dealers and investment advisors,” she said.
Peirce took caution to clarify that AI “could pose risks to investors or market participants, and the commission may have a role in resolving such issues, but the commission should not get lost in artificial fears,” she noted. “It should base any action on a thorough understanding of the particular AI problem it is trying to solve, and why a regulatory solution to that problem is warranted.”
“Approaching it this way is less daunting than trying to design some grand regulatory solution to respond to imprecise AI fears,” Peirce continued. “It’s also consistent with how we regulate humans who are far more wonderful, intriguing, and complex than AI, and who also can cause trouble.”
Meanwhile, Commissioner Caroline Crenshaw stressed the idea of a reset.
“Whenever I speak with members of the financial services community about AI, I ask them, ‘How do you define AI, and how are you using it?,’’ she said. “There is one constant: No one was on the same page. So in many ways, when we speak about these technologies, I think we have a tendency to talk past each other.”\
“AI appears to represent a sea change in technology. It is powerful and persistent. It will drive change,” she said later. “The question is, are we prepared for it?”