The field of artificial intelligence (“AI”) is booming. As the headlines proclaim, the race to be the most successful AI company is on in the private sector, with huge sums of money fueling the rush to become the leader in the field. The push to integrate AI into banks and other financial markets is equally intense. Financial services companies' spending on AI now exceeds AI spending in all other industries, even in technology. Wall Street's megabanks are driving this growth. For example, between 2017 and 2021, the five largest investment banks filed 94 percent of AI-related patents, published two-thirds of AI research papers, and made half of AI investments. Experts predict that financial institutions' spending on AI will continue to rise, doubling from 2023 to 2027 and exceeding $400 billion.
Regulators have begun to take some initial steps to address the use of AI in finance. These are largely policy statements, guidelines and consumer advice (as described in the appendix below). Substantial standards are emerging in some areas, including the SEC's proposal for predictive data analytics. But it needs to be done much faster to keep pace with the development of AI so that investors; all financial markets, from securities to banking to derivatives; and general financial stability are protected. The growth trajectory and penetration of AI into all areas of the financial industry requires a new regulatory approach that effectively incorporates agile and forward-looking regulatory frameworks with a focus on consumer protection, ethics, transparency, accountability and financial stability.
Important Better Markets materials on AI
Fact Sheet: Regulators Must Carefully Consider Benefits and Risks of AI in Financial Markets (03/21/24)
Comment Letter: Our team provided our opinion on a proposed rule by the SEC regarding the use of predictive analytics by investment advisors. (03/26/24)
Opinion Letter: SEC's Predictive Data Analytics Rule Would Help Prevent Financial Firms from Using AI That Harms Investors (10/11/23)
Fact Sheet: SEC's Proposed Predictive Data Analytics Rule Is Critical to Protect Investors from Conflicts of Interest as Financial Firms Increasingly Use Artificial Intelligence (10/5/23)
Selected AI media from Better Markets
Politico Morning Money: Ideas about AI (3/22/24)
“Better Markets, which advocates for stricter financial regulation, publishes a new fact sheet on AI oversight that calls for improved enforcement and regulatory standards that go beyond disclosure.
“'AI requires a new approach to financial regulation that effectively incorporates agile and forward-looking regulatory frameworks and focuses on consumer protection, ethics, transparency, accountability and financial stability,' said Stephen Hall, legal director of Better Markets.”
Bloomberg: Wall Street Prepares for Heightened SEC Scrutiny of AI and Private Funds (12/28/23)
“Proponents of the rule, including the Washington-based group Better Markets, which generally advocates for stricter financial rules, said the proposal was necessary to keep pace with technological innovation and ensure that companies do not use technology to further their own interests to put “interests above investors.”
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