The U.S. Securities & Exchange Commission (SEC) is showing a high interest in regulating the usage of Artificial Intelligence (AI) within the financial services sector. According to a recent client alert issued by
Mintz, this attention is primarily focused on the proposed regulations for conflicts of interest relating to AI, predictive data analytics, and similar technologies used by broker-dealers and investment advisers – collectively termed as the “PDA Conflicts Rules”.
These proposed rules, if adopted as they are, and interpreted strictly and liberally, could amount to major changes within the industry. Nevertheless, it should be noted that details of the rules remain in the discussion phase and thus, this article only provides an overview based on the limited information currently available.
The PDA Conflicts Rules ostensibly intend to increase transparency and provide greater clarity around the mechanisms of AI-influenced financial advice. The increasing deployment of AI and predictive data analytics by financial services providers has prompted the SEC to pursue regulatory measures that ensure consumer protection without stunting technology-led progress within the financial sector.
The proposed rules bring to the forefront some critical questions regarding the enduring tension between the implementation of AI, maintaining legal compliance, and securing fiduciary responsibility. As we continue to see widespread adoption of AI in various fields, understanding and responding to such proposals could directly impact strategies within legal departments around the globe.
This article represents the first installment of a three-part series looking into how the U.S. SEC is targeting AI. Future pieces will delve deeper into how corporations, law firms, and multinational companies can interpret and respond to these movements within legal regulation.