The top securities regulator in Massachusetts, William Galvin, has recently sent letters to seven financial firms, requesting information about their utilization of artificial intelligence (AI) in their interactions with retail investors. Galvin is seeking details on how these companies are employing AI and what measures they have in place to ensure that their clients are not being harmed.
According to Galvin, state securities regulators have a crucial role to play in overseeing the impact of AI on Main Street investors. He expresses concerns regarding the potential harm that this technology could inflict on investors if not properly regulated and if conflicts of interest are not adequately considered and disclosed.
Galvin’s letter closely follows a federal probe into the use of AI by advisors and brokers. The Securities and Exchange Commission (SEC) recently voted to consider implementing rules that would establish guidelines for the use of predictive analytics, artificial intelligence, and other advanced technologies in the practices of advisors and brokers. The SEC shares the same concerns as Galvin, particularly regarding the potential for AI to serve the interests of the employing firms rather than those of their clients.
Artificial Intelligence in the Securities Industry: Massachusetts Regulator Inquires
The office of Massachusetts Secretary of the Commonwealth, William Galvin, has recently initiated an investigative inquiry into the use of artificial intelligence (AI) by firms operating in the securities industry. Letters have been sent by the office to several prominent organizations, including JPMorgan Chase, Morgan Stanley, Tradier Brokerage, U.S. Tiger Securities, E*Trade, Savvy Advisors, and Hearsay Systems – a financial-technology firm specializing in enhancing the advisor-client relationship.
Although each letter contained slight variations in wording, the precise details have not been disclosed by a spokeswoman representing Galvin’s office. The selected recipients were chosen based on their known involvement in utilizing or developing AI for business purposes within the securities industry.
Emphasizing the significance of supervisory procedures relating to AI implementation, Galvin’s office seeks to ensure that the interests of clients are safeguarded and prioritized over those of the firm. The Massachusetts regulator is particularly interested in examining whether firms have established robust systems to oversee the responsible use of AI.
Additionally, Galvin’s inquiry extends to firms already utilizing AI technology, with a focus on their disclosure practices surrounding its application. Disclosure-related inquiries seek to shed light on how firms are informing investors about the utilization and impact of AI within their operations.
Moreover, the Securities Division, as part of its sweep investigation, is also inspecting marketing materials provided to investors, questioning whether any AI-generated content has been deployed for better engagement or decision-making processes.
Galvin’s office notably refers to this inquiry as an “investigatory sweep” and has requested responses from the selected firms by August 16th.
