SEC Sweep for AI Use | Fred Teufel Insights
VIGILANT INSIGHTS
Introduction
The use of Artificial Intelligence (“AI”) by Registered Investment Advisers (“RIAs”) and Broker Dealers is one of the many targets for SEC sweeps.
SEC Chair, Gary Gensler, has discussed his concerns with this growing technology and his commitment to ensuring Firms remain compliant with all applicable laws.
In March 2024, two firms were charged for misleading statements related to AI in marketing.
Vigilant Director, Fred Teufel, CPA, MBA, CGMA, was quoted in a recent BoardIQ article discussing the on-going SEC Sweeps.
Fred Teufel Insights
Fred has provided numerous commentary on misleading AI statements and AI risks for institutional investors.
Some discussions in the industry revolve around what level of compliance risk Firms are taking on when they incorporate AI. Fred sees the risk level vary based on what tasks the programs are being used for.
AI used for research, or the production of marketing materials, would be relatively low if proper oversight occurs. However, if financial transactions are being sent through these applications the risk will be much greater.
It is vital for Firms to look at SEC actions in the past and use them to gauge their own risk level, especially if they have similar practices to those that have faced enforcement.
The key is to be proactive, looking internally at one’s own gaps and vulnerabilities, and take the steps required to close them. Waiting for rule changes and enforcement would not be prudent for Fund leadership.
Vigilant’s Conclusion
Compliance programs should adapt and adjust to the changing risk landscape.
With technology advancing incredibly quickly, it can be difficult for compliance departments to keep up.
Firms need to maintain an understanding of how the use of AI, whether developed by third-party vendors or in-house, is integrated into their business actions. This understanding is particularly important if Firms are marketing their use of AI to the public. Reach out to us today with any questions or concerns you may have.