The chair of the US Securities and Exchange Commission (SEC), Gary Gensler, has spoken out against “AI washing,” a deceptive practice involving the misuse of artificial intelligence (AI) in the financial sector. Gensler’s comments came on March 18, coinciding with lawsuits and enforcement actions taken by the SEC against companies engaged in AI washing.

AI washing involves false claims made by investment advisers and broker-dealers about using AI to generate higher investment returns. Publicly traded companies may also exaggerate their use of AI to boost stock prices. Gensler emphasized the importance of accuracy in such claims, stating that transparency is essential.

According to Gensler, AI technology has the potential to significantly transform the financial system by enhancing inclusion, efficiency, and user experience, likening it to the impact of the internet.

The SEC recently settled cases with two companies, Delphia (USA) Inc. and Global Predictions Inc., that made misleading statements about their AI capabilities. Delphia claimed to use AI to predict successful companies for early investment, while Global Predictions falsely presented itself as the “first regulated AI advisor” offering expert AI-driven forecasts.

SEC Enforcement Director Gurbir Grewal highlighted the lack of actual AI capabilities in these firms, labeling their actions as AI washing, which ultimately harms investors. As part of the settlements, Delphia and Global Predictions agreed to pay civil penalties of $225,000 and $175,000, respectively, for violating securities regulations.

Despite the SEC’s previous proposal to regulate AI use in financial markets in 2023, progress on the matter has stalled due to opposition in the Senate. The SEC’s actions against AI washing aim to protect investors and maintain integrity in the financial sector.


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