What Can the SEC Do With AI?

The Securities and Exchange Commission has formed a task force on artificial intelligence that, according to the agency, is focusing on AI applications that “maximize benefits” for the agency.

Given that the SEC receives about 4,700 regulatory filings per day, the task force was set up in part to “augment the staff’s capacity, accelerate innovation and enhance efficiency and accuracy,” according to SEC Chair Paul Atkins’ statement in the announcement on August 1.

“It’s an internal technology augmentation,” says Haima Marlier, a former SEC counsel and a partner in Morrison Foerster’s investigations and white collar defense group. “They’re saying, ‘Hey, there’s this technology out there that we have perhaps previously not leveraged as much as we could.’”

Marlier, the co-chair of her firm’s fintech practice, also said the SEC’s February reworking of its former “Crypto Assets and Cyber Unit” as the “Cyber and Emerging Technologies Unit” shows how the agency is broadening its approach to digital technology.

Observers also expect changes in how the SEC regulates AI. Former SEC Chair Gary Gensler was largely criticized for proposing a rule to have advisers and broker/dealers eliminate conflicts of interest arising from AI use. He also opened investigations into “AI washing,” or false claims of using AI for specific investment functions. Starting in March 2024, he directed the SEC to for misleading marketing.

Under Atkins, the first AI-washing case accused a startup CEO, Albert Saniger, with “fraudulently soliciting investments” by making misleading claims about AI use. In May, Atkins appeared at a House Appropriations Committee oversight hearing and commented on prosecuting individuals rather than companies at large, saying that fines against companies could be doubly harmful to shareholders.

“Oftentimes, penalties that are assessed against corporations are because of issues that basically harm the shareholders themselves, whether that resulted in financial fraud or something like that,” Atkins said. “So it seems unfair to impose a penalty on the very shareholders of the company who were ripped off.”

Atkins said his views echo a 2006 statement released during his first term as SEC commissioner, from 2002 to 2008.

Marlier advises financial professionals to be truthful about their use of AI in any SEC filings, just as they would be about other areas of their practice.

Positive Side to Regulation

Geoff Clauss, chief revenue officer of the AI company Boosted.ai, said any resulting SEC regulation on AI will have a positive impact on the industry. He said the banks and large financial institutions with which his company works have a “very high level of integrity and protection for their clients,” and he expects regulators to have a similar mindset as they create industry rules.

“The regulatory environment is here to protect us,” Clauss says. “Essentially, what they’re saying is ‘You’re going to use AI, you should be using it. But you need to do it in an honest, transparent manner that allows you to prove you’re acting in your client’s best interest.’”

Clauss, whose company launched the agentic AI investment platform Alfa last month, said that AI financial tools are akin to previous proprietary data platforms and trading algorithms, but now they have a deeper reach.

“They’re no longer looking for just a price movement,” he says. “They’re looking for price, news, earnings, sales and economics within countries and other markets to then create signals for the buying.”

He raised the example of a trader who looks at multiple screens but only needs to find one thing on each screen. AI has the potential to boil down that disparate information into one feed.

As for advisers who are complete novices at AI, Clauss recommends starting simply by first learning what they can accomplish with a free chatbot, rather than immediately springing for an expensive product.

“By getting familiar with it, you’re going to learn how it will apply to your business,” Clauss says. “Ultimately, we’re going to move into an environment where it plays an essential role in virtually every business.”