Capital Markets | Securities Regulation

Artificial Unintelligence in Financial Markets

How two investment firms got a $400,000 reality check from the SEC

Recently, the Securities and Exchange Commission (SEC), the agency that oversees the stock market, has been very active in creating new rules. Their attention is particularly focused on new technologies and protecting against cyber threats. They have been taking a closer look at digital currencies (aka, crypto), and also setting rules that require companies to be more open about their cybersecurity risks. Additionally, the SEC is tackling something called “AI washing”. This term is similar to “greenwashing”, where companies falsely claim to be environmentally friendly.

So, AI washing happens when a company exaggerates how much it uses artificial intelligence to seem innovative and attract investors. Think about a guy who wants to impress his classmates, especially the girls, by saying he’s an expert skateboarder. He talks about all the complex tricks he can do. However, when it’s time to show his skills at the skate park, it turns out he can barely ride the skateboard and knows just a few simple moves.

Similarly, AI washing happens when a company says it uses advanced AI technology in its products or services to seem more cutting-edge and attract investors or customers. However, their actual use of AI may be minimal or very basic. They overstate their capabilities to enhance their…