Lawmakers on Sept. 20 debated how to oversee the use of artificial intelligence in financial services without facilitating exploitation of the technology.
"AI's a tool. We have the responsibility to set policies to ensure that when and if this tool is used, it's used to make our economy work better for consumers and savers — not to exploit them," Chairman Sherrod Brown, D-Ohio, said in his opening statement before the Senate Banking Committee.
"At a minimum, the rules that apply to the rest of our financial system should apply to these new technologies," Brown added.
Sen. Mike Rounds, R-S.D., seemed to agree with the top Democrat on the committee, as he said, "What was illegal before AI remains illegal, and individuals abusing technology to carry out illicit activities should and will be prosecuted to the fullest extent of the law."
However, "I think it is important that we take a pro-innovative stance, which will allow the United States to keep and attract the best and brightest talent," Rounds added.
Rounds specifically called out the SEC for its new proposal focused on the use of AI by investment advisers and broker-dealers.
"In this attempt to control emerging technology, the proposal would cause current successful uses of the technology to suffer," he said.
The proposal, issued in July, would require investment advisers and broker dealers to "evaluate and determine whether its use of certain technologies in investor interactions involves a conflict of interest that results in the firm's interests being placed ahead of investors' interests," according to an SEC news release. If such a determination is made, then firms are obligated to eliminate or neutralize the effect of the conflicts.
On Sept. 19, six industry groups wrote a joint letter to the SEC, urging the regulator to withdraw the proposal.
The proposal's "flawed economic analysis raises the probability that the proposed rule, if finalized as is or in any comparable form, would be struck down by a court that would be likely to find it arbitrary and capricious," said the American Benefits Council, American Securities Association, Finseca, Institute for Portfolio Alternatives, Insured Retirement Institute, and National Association of Insurance and Financial Advisors in the letter.
On Sept. 11, a group of 13 trade associations — including the American Securities Association, Finseca and Insured Retirement Institute — wrote a separate letter to the SEC raising concerns over the same proposal. In that letter, the trade groups wrote that the SEC lacks statutory authority to adopt such rules, and the rule proposal "is outright hostile to the use of technology."
