Artificial intelligence should be embraced and encouraged, but in a thoughtful way, according to Troy Paredes, Founder, Paredes Strategies, and a former SEC Commissioner.
Speaking on Monday, June 24 at the second annual “Former SEC Speaks” panel discussion organized by law firm BakerHostetler, Paredes said that AI changes the ways in which decisions get made. “We got to make sure that we are fully cognizant of the benefits.”
He thinks that one of the profound implications from a Securities Law perspective is that there are ways in which AI goes to the “heart of the effectiveness of a disclosure regime”.
John Carney, Co-Leader of BakerHostetler’s White Collar, Investigations and Securities Enforcement and Litigation team, who moderated the discussion, said: “We are on the verge of AI really taking off, and everything that we do in life, and that it’s also going to be something that’s going to be present in the markets.”
He said that there have been cases in the past couple of months in the Division of Enforcement, where it was registrants or market actors who are touting their use of AI for particular products in a misleading fashion.
He added that in an interview on the POLITICO Tech podcast, Chairman Gensler described a doomsday scenario in which many of the country’s big financial institutions rely on a small number of AI algorithms to make investment decisions — creating a vulnerability that regulators could miss by focusing on only a sliver of the sector.
Daniel Gallagher, Chief Legal and Corporate Affairs Officer, Robinhood, SEC Commissioner (2011 – 2015), added that the “Commission has to be really careful”. He said he worries because of the initial focus on the negative side. “It feels again like crypto.”
“When Crypto rolled out there was so much fraud hat the focus was on the fraud, not the positive,” he said.
Michael Piwowar, Executive Vice President, Finance, Milken Institute, Acting SEC Chairman (2017), SEC Commissioner (2013 – 2018), said that his fear is what the SEC has done in the crypto space is having the same effect on artificial intelligence. “What the Commission should be doing is bringing in the smartest people, and learning as quickly as possible on all the potential opportunities that this brings as well as some of the risks and challenges,” he said.
He also said that firms are able to use artificial intelligence themselves on their compliance, obligations to the Commission and look at unstructured data and look at chat and look at email and look at all these other things that they haven’t been able to do. “Then find it and stop it more quickly than if this thing would have gotten out of hand,” he said.
‘Former SEC Speaks’ also included a discussion regarding the agency’s recent actions and its approach to digital asset regulation and enforcement, cybersecurity, off-channel communications and civil penalties and ESG, among other topics.
The event is part of BakerHostetler’s Bulls, Bears, and Blockchain Fireside Chat series, which brings together industry professionals to discuss the latest developments impacting the capital markets and their participants, and the blockchain industry.
