SEC's Gary Gensler claims AI could enhance enforcement

By: Michael Wilson

SEC's Gary Gensler claims AI could enhance enforcement

July 18, 2023 6:25 AM

Gensler mentioned market surveillance as well as three other use cases where the securities regulator team may benefit from increased usage of AI.

The head of the US SEC, Gary Gensler, thinks more AI use would be beneficial for personnel at his organization.

Gensler mentioned→ several possible use cases of AI that might assist the regulator in its duty as securities watchdog during a July 17 speech at the National Press Club, when he later broke his silence regarding the recent Ripple court verdict.

"More widespread use of AI by SEC personnel in market tracking, disclosure review, exams, enforcement, and economic research would improve the agency as a whole," he argued.


SEC On July 17, Chair Gensler addressed the National Press Club.Source: SEC.

At least 54 cryptocurrency businesses have been subject to SEC enforcement actions between the beginning of 2018 and the middle of 2023. Following the fall→ of FTX in November, the rate of such actions increased dramatically.

The SEC Chair praised AI for its potential to benefit humans in the financial markets, and while Gensler didn't elaborate on how the agency might use AI, he said so in general terms.


"AI creates enormous opportunities for humanity as a whole covering everything from healthcare to medical research to finance." Robots' Pattern recognition, especially at scale, can potentially deliver significant efficiencies across the economy."

I think it's the most revolutionary technology of our time," Gensler said. "It's right up there with the internet and the mass manufacturing process for cars."

Gensler warns that there are still problems with AI.

Despite a largely positive opinion, Gensler pointed out that numerous AI systems are biased and deceptive, violate privacy rights, and have multiple conflicts of interest.

Concerning bias, Gensler stated that some predictive AI algorithms reflect past biases, making the system less reliable and, in some situations, resulting in an utterly erroneous prediction.


Related: Ripple prevails in SEC case as judge rules XRP isn't a security

When a phony AI-generated text of his resignation began spreading on the internet, Gensler pointed out that he was a victim of misinformation.

Conflicts of interest may occur when AI systems are educated to prioritize the interests of the corporation over the interests of the client, according to Gensler. He went on to say:

"For this reason, I've asked that the SEC's staff provide suggestions for the rule changes for the Commission to consider that could assist in reducing the effects of conflicts of interest in all dealings with investors."


Additionally, he thinks that the establishment of several AI monopolies may destabilize the economy and maybe contribute to a "future financial crisis."


On July 17th, in a follow-up interview with Yahoo Finance, Gensler reiterated that the SEC will take action against those who utilize AI to deceive investors.

"Fraud is simply fraud." "If a bad actor uses AI to deceive the public, we are not only authorized but also compelled by Congress to go after them," he stated.