The focus has been and continues to be on all things AI. Using AI in a responsible way will continue to be a challenge, especially in the financial industry. The recent passing of the EU AI Legislation in March (read more about the legislation) and US Executive Order in February (read more about the order) have signaled that AI regulations are being formalized and firms need to pay attention and comply or suffer the consequences.
AI has quietly been in the mix of our daily life for a while. Now, with the more widespread use of generative AI, it seems to be coming to the forefront of all our personal and business interactions. Recent conferences that I have attended have had at least half of their agendas dedicated to AI issues and the resulting challenges. Almost every vendor seems to have added an AI facet to their offering, opening up potential unknown risks. Some financial firms are of course using AI for investment purposes, touting and marketing their use of AI to make investment decisions. This may enable firms to add value and enhance their brand and appeal to new investors. While AI promises a myriad of benefits to firms and their customers, we are still uncovering the risks and trying to determine how to best mitigate them.
Ebook download → AI insights survey: Adopters, skeptics, and why it matters.
Now, enforcement is starting to kick in with the SEC charging two investment advisors for making false and misleading statements about their use of AI. Firms are trying to enhance their brand and offerings with their use of AI, hoping it will give them an advantage over traditional methods and their competitors. In the words of SEC Chair Gary Gensler:
“We’ve seen time and again that when new technologies come along, they can create buzz from investors as well as false claims by those purporting to use those new technologies. Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors.” (Read more here.)
The newly coined “AI washing” is similar in some ways to how ESG methods and “green washing” have come under scrutiny.
So, the lesson here is that if you are using AI, be very careful how you are positioning it. Make sure that you have the capabilities that you claim to have and have the backup, in data and evidence, to prove it. Also be aware that states are proposing related regulations at an unprecedented rate, and whether you are creating or leveraging AI, the relevant regulatory compliance requirements are evolving rapidly. The SEC and other regulators are likely to make examples of firms that are not being responsible and not practicing what they preach.
The opinions provided are those of the author and not necessarily those of Fidelity Investments or its affiliates. Fidelity does not assume any duty to update any of the information.
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