Home > News > Cryptocurrency Market > Massachusetts launches probe into AI in securities industry

Massachusetts launches probe into AI in securities industry

Massachusetts securities regulators have started a new investigation into the use of artificial intelligence (AI) in the securities industry, after becoming increasingly concerned about the implications.

On Aug. 3, Massachusetts Secretary of the Commonwealth William Galvin officially announced an investigation into the ways in which firms may be using AI in their interactions with Massachusetts investors.

Galvin’s securities division on Aug. 2 sent letters of inquiry to a number of registered and unregistered firms known to be using or developing the use of AI for business purposes in the securities industry. The authority sought data on the matter in which companies may be using AI in their activities and operations.

The firms included in the investigatory sweep have been given until Aug. 16, 2023 to respond to the regulator’s inquiries.

“Of particular interest to Galvin are the supervisory procedures that firms have in place regarding artificial intelligence, and whether those systems ensure that the AI will not put the interests of the firm ahead of the interests of their clients,” the regulator said. For those firms that have already deployed AI, the securities division will also be assessing the disclosure policies.

According to Galvin, United States securities regulators have a crucial role to play when it comes to AI and its possible implications for investor protection. He added:

“If deployed without the guardrails necessary to ensure proper disclosure and consideration of conflicts, I am concerned that this technology could result in harm to investors.”

Additionally, Massachusetts securities regulators are also questioning certain companies about any marketing materials provided to investors that may have been created using AI.

The Massachusetts securities division did not immediately respond to Cryptox’s request for comment.

AI has been increasingly becoming a subject of global regulatory concerns in recent years, which comes naturally with the rapid growth of the technology. In the second fiscal quarter of 2023, mentions of AI in earnings calls for major tech companies skyrocketed. For example companies like Intel mentioned nearly 300% more in Q2 2023 than during its first-quarter call.

Related: SEC’s Gary Gensler believes AI can strengthen its enforcement regime

But some major regulators have alarmed potential risks coming with AI years before. For example, the Financial Stability Board raised concerns about AI and machine learning in financial services back in 2017.

The FSB specifically argued that AI and machine learning services were increasingly being offered by a small handful of large technology firms. “There is the potential for natural monopolies or oligopolies,” the FSB wrote, adding that competition issues could be translated into financial stability risks.

“If one of them were to face major disruption or insolvency, there would be major repercussions in the world of finance,” the regulators argued at the time.

Magazine: AI Eye: AI’s trained on AI content go MAD, is Threads a loss leader for AI data?