SEC Cracks Down on 'AI Washing' in Financial Sector

SEC Cracks Down on 'AI Washing' in Financial Sector

By: Eliza Bennet

The United States Securities Exchange Commission (SEC) chair Gary Gensler has condemned practices of 'AI washing' in the financial sector, warning that inaccurate claims about use of artificial intelligence (AI) could violate securities laws. AI washing is when financial entities make false claims about their use of AI, potentially enhancing their investment returns or stock prices.

This crackdown coincides with lawsuits and regulatory actions by the SEC against such practices. The SEC recently charged investment advisory firms Delphia (USA) Inc. and Global Predictions Inc. for making false and misleading statements about their use of AI. Both companies consequently paid significant civil penalties as part of their settlement with the SEC.

AI technology is heralded for its transformative potential within the financial system, improving inclusion, efficiency, and user experience. However, there's increasing pressure for companies to accurately represent their application of AI. In parallel news, Microsoft co-founder Bill Gates has been highlighting the potential of AI, but stresses the need for careful implementation.

An unnamed federal judge recently ruled that the SEC had committed a 'gross abuse of power' in filing a suit against a crypto company, Debt Box, underscoring the complexity and delicacy of the regulatory landscape.

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