In a move to carefully assess potential implications, several prominent trade associations have formally petitioned the U.S. Securities and Exchange Commission (SEC) for an extension of the comment period regarding the agency’s proposed AI regulation concerning the utilization of artificial intelligence within the financial sector. The proposal, unveiled by the SEC last month, has triggered concerns among business entities that its implementation could stifle technological innovation.
The call for more time
Leading the charge, trade groups including the U.S. Chamber of Commerce, the Securities Industry and Financial Markets Association, and the Investment Adviser Association, have collectively requested a two-month extension to the existing deadline for public comments. Currently set for October 10, the present cut-off date for submissions, according to these groups, does not provide adequate time for thorough analysis and formulation of responses.
A “chilling effect” on innovation
In a letter addressed to the SEC, the groups argued that the proposed regulation could detrimentally impact technology deployment in the financial domain if enacted without sufficient consideration. By imposing stringent requirements on firms’ use of AI, they fear the regulation could hinder direct benefits like accelerated reporting capabilities and indirect gains such as cost reduction through operational efficiencies.
Focused on predictive data analytics
The core of the SEC’s proposal centers around the application of predictive data analytics by investment advisers and broker-dealers. Specifically, the agency seeks to address the potential conflicts of interest that could arise from the use of AI, particularly in tools integrated into smartphone applications. These tools aim to encourage increased trading frequency or sway users towards different investment strategies. The SEC’s concern is that these applications might prioritize business interests over the well-being of investors.
Interplay with existing regulations
The trade groups emphasize the necessity of considering the proposed AI regulation within the broader context of existing rules and regulations. For instance, they point to Regulation Best Interest (Reg BI), which governs the recommendations made by brokerage firms to customers. Additionally, the trade groups highlight a recently enacted rule pertaining to marketing regulations for investment advisers. They believe that a comprehensive analysis of the interplay between the proposed AI regulation and these pre-existing legal duties is crucial before finalizing any new requirements.
Navigating a complex regulatory landscape
The trade groups note that the proposed regulation is not the only change in the regulatory landscape. They underscore the substantial number of rulemakings and new rules introduced by the SEC since Gary Gensler assumed the role of chair in 2021. The trade groups express concern about how these collective regulatory changes might impact firms, service providers, and investors. They argue that the complex nature of these evolving regulations necessitates a more comprehensive review period.
Request for adequate time
In their letter to the SEC, the trade groups contend that the proposed AI regulation must be evaluated within the broader regulatory environment, considering the cumulative effect of multiple rulemakings. To provide well-informed feedback that takes into account the evolving regulatory landscape, they stress the need for a more extended comment period beyond the current 60-day window.
SEC’s response awaited
At present, the SEC has not issued a formal response to the trade groups’ request for an extended comment period. The trade associations’ call for additional time reflects a broader industry concern regarding the potential ramifications of the proposed AI regulation on technological advancements and business operations in the financial sector.
The SEC’s proposed AI regulation has sparked a call for measured consideration. As the trade groups await the SEC’s response, the broader financial industry watches with anticipation to see how this intricate issue will be resolved.
