Intelligize Report Drills Down on Growing Concerns About Use of AI

Whether artificial intelligence will prove to be society’s friend or foe depends not on the technology itself, but how we use it. To that end, business interests, government authorities and shadow regulators all have an interest in seeing safeguards installed to keep both overenthusiastic AI devotees and bad actors in check.

A new Intelligize report examines how three key groups of stakeholders – the Securities and Exchange Commission, registrants, and shareholder activists – are preparing for a future in which AI will assuredly play a larger role in our lives. It suggests the SEC and companies are treading particularly carefully over the new terrain of AI.

The report notes that SEC Chair Gary Gensler is backing up his big talk about securities regulation and AI with action. The analysis cites three steps taken by the agency in the last year that seem pertinent.

First, the SEC proposed a new rule in July 2023 directed at conflicts of interest for broker-dealers and investment advisers. The gist of the rule: Firms must “meet their obligations not to place their own interests ahead of investors’ interests” when deploying predictive data analytics or similar technologies.

Second, the SEC’s Office of Investor Education and Advocacy joined the North American Securities Administrators Association and the Financial Industry Regulatory Authority in spreading the word about AI-fueled scams. In a joint alert published in January, the three organizations warned of fraudsters seizing on “the growing popularity and complexity of AI.” It cautioned the public to beware of unregistered or unlicensed investment platforms that purported to use AI, among other safeguards.

The SEC is also ramping up AI-related enforcement regarding so-called AI washing. For example, the SEC’s enforcement arm in March announced it had settled charges against two investment advisers charged with making false and misleading statements about how they use AI.

Meanwhile, the report shows shareholder activists have taken notable steps to express their growing concerns over AI’s presence in big business. These gestures often take the form of stockholder proposals that target the resulting ethical issues arising as publicly traded companies incorporate AI into their operations and business strategies.

Per usual, companies are pushing back against these efforts, requesting no-action relief from the SEC for keeping the proposals off their proxy statements. The commission appears inclined to side with the activists on the matter, however. To wit, the SEC this year has shot down requests by high-profile corporations like Apple Inc., The Walt Disney Co. and Paramount Global to exclude AI-related proposals.

For more on the findings about emerging safeguards for AI technology, download a copy of the Intelligize report.