In a Senate oversight hearing on September 12, Gary Gensler, the Chair of the United States Securities and Exchange Commission (SEC), publicly disclosed that the agency has been actively employing artificial intelligence (AI) technologies to monitor the financial sector for signs of fraud and manipulation. This announcement marks the first official acknowledgment of the SEC’s use of AI in its surveillance operations.
Gensler had previously articulated the rationale for integrating AI technologies into the SEC’s surveillance framework during a speech delivered at the National Press Club on July 17. However, the agency’s specific utilization of AI had not been publicly disclosed until now.
When queried by Senator Catherine Cortez Masto regarding the SEC’s AI strategy, Gensler stated, “So, we already do. In some market surveillance and enforcement actions. To look for patterns in the market. … It’s one of the reasons why we’ve asked Congress for increased funding for the year 2024 to bolster our technology budget for emerging technologies.”
Although the revelation that the SEC is harnessing AI for its operations may not be entirely unexpected, the absence of a formal, public announcement concerning its use had been a point of curiosity.
It is important to note that, aside from the requirement to report cybersecurity incidents, mandated by legislation signed into law by President Biden in March 2022, there are presently no legal obligations obliging U.S. agencies to publicly disclose their internal adoption of new technologies.
In terms of the specific AI technology employed by the SEC, Gensler’s description leaves room for interpretation. Nevertheless, the agency has submitted several analysis reports pertaining to the utilization of AI and algorithmic trading in financial markets. Given its regulatory mandate, it is plausible that the SEC utilizes machine learning algorithms capable of scrutinizing vast datasets to detect irregular patterns or behaviors within financial markets.
The SEC’s incorporation of AI technologies into its surveillance toolkit reflects a broader trend where regulatory agencies harness advanced technologies to augment their oversight and enforcement capabilities in the dynamic and ever-evolving financial landscape.
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