Artificial intelligence has developed rapidly in recent months, but regulating how it’s used to provide financial advice and manage assets is likely to evolve more slowly.
ChatGPT and other large language models have sparked imagination and stoked fears about how AI can be applied to a variety of fields and skills — from sales and software development to writing, editing, and almost anything else. It’s not clear yet what its impact will be on making investment recommendations.
The Securities and Exchange Commission is likely to monitor how financial advisors and asset managers use AI and then determine how existing regulations can address potential investor harm before launching a rulemaking effort focused on AI, said Mike Abbriano, managing director of ACA Group, a compliance consultant.
“For the near term, they’ll take a wait-and-see approach and use the broader anti-fraud tools they have at their disposal … [rather] than handcuff themselves with more specific regulation that doesn’t keep up with the pace of innovation in this space,” Abbriano said.
The SEC has scheduled for October the release of proposed rules “related to investment adviser conflicts in the use of predictive data analytics, artificial intelligence, machine learning, and similar technologies in connection with certain investor interactions,” according to the agency’s latest regulatory agenda.
SEC Chair Gary Gensler has made a priority of addressing advisors’ so-called digital engagement practices. For instance, he has expressed concern about whether the algorithms for robo-advisors and online brokerage platforms optimize for the benefit of the investor or the financial firm.
The upcoming SEC proposals may address that issue and extend into artificial intelligence.
In a previous agenda, the SEC listed an upcoming proposal on digital engagement practices. It appears that proposal has been expanded to include AI, said Ben Marzouk, a partner at the law firm Eversheds Sutherland.
“I think they’ve been waiting to release the proposal in order to account for all the developments in AI,” he said.
Lawmakers also are trying to wrap their arms around AI. Senate Majority Leader Chuck Schumer, D-N.Y., last month announced a framework for AI legislation.
The effort will start with meetings later this year of expert panels who will try to unravel thorny issues surrounding the use of AI, such as national security, privacy, worker protection and copyright. Schumer has also asked Senate committee leaders to identify areas under their jurisdiction for potential AI work.
“We must come up with a plan that encourages — not stifles — innovation in this new world of AI,” Schumer said in a speech last month.
Marzouk hopes the SEC and the Financial Industry Regulatory Authority Inc. also take an approach that doesn’t crimp the use of AI for financial advice.
“Both regulators should be careful not to stifle innovation,” he said. “It’s important to let the technology breathe.”
Wealth Consulting Group, Coastline and Maridea report fresh capital, acquisitions and asset growth as advisor M&A keeps climbing
Carson Group's Dani Fava, Jason Pereira of Woodgate Financial, and Sally George of Convergency Partners led the raise as the growth-tech startup builds out its AI platform and leadership bench.
New teams from William Blair, Ameriprise and UBS bring more than $560 million in combined client assets to the firm's employee and independent channels.
Regulators this year approved UBS Bank USA’s conversion to a nationally chartered bank.
How a subprime lender’s car-loan bonds allegedly unraveled before bankruptcy.
Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income
