Director of Enforcement Division Talks AI | Key Takeaways
SEC RELEASES
Introduction
Artificial Intelligence (“AI”) continues to grab the attention of regulators that are trying to stay ahead of the risks to investors.
In March, two RIAs were charged for advertising statements made related to AI.
Gurbir Grewal, Director of the Division of Enforcement, spoke at Program on Corporate Compliance and Enforcement (“PCCE”) in April about the risks presented by fast-pace technological changes.
Key Takeaways
- Elevated investor interest often leads to elevated investor risk.
- 61% of investors think that faster adoption of AI is very or extremely important, and an additional 24% think it is moderately important.
- ESG is seen as a good starting point when considering how regulators may act.
- Exaggerated or misleading statements about how AI is used by the Firm will be punished.
- Avoid the temptation of “rushing to make claims about using AI” in attempt to profit off the current hype.
- Proactive compliance will be necessary for success with this new technology.
- Educate yourself about the risk areas surrounding AI and how they could affect your business; some of these examples include:
- AI hallucinations
- AI stability related to markets
- Potential conflicts of interest
- Engage with the employees in your company to understand how they are using AI and use this information to gain an understanding of what compliance risks could occur.
- Execute the proper actions to address the risks identified.
- Create relevant and sufficient AI policies and procedures.
- Ensure that the policies and procedures are actually implemented and supervised; this is where most companies fail.
- Educate yourself about the risk areas surrounding AI and how they could affect your business; some of these examples include:
- The SEC considers what information the person should have known, did or didn’t do, and how they measure up to industry standards.
- People operating in good faith and taking reasonable steps “are unlikely to hear from us”.
Vigilant’s Conclusion
As AI continues to catch headlines, it is vital that Firms prepare for the compliance risks that are relevant to their business.
Taking proactive steps can lower your risk of heavy compliance burdens down the road.
Vigilant provides an initial Gap Analysis and end-to-end Compliance Support, amongst other services, to help identify your risks and mitigate them appropriately.
Reach out to us today for any questions or additional information.