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AI can harm the Investors: Massachusetts Probes an Inquiry

Key Takeaways
  • Massachusetts' securities authorities have launched an investigation into the use of AI in the securities sector
  • The explosive growth of AI in recent years has led to regulatory scrutiny worldwide, with tech companies increasingly using AI in their operations
  • Major financial authorities have long expressed concerns about the risks posed by AI, including the threat to financial stability
06-Aug-2023 By: Anushka Saxena
AI can harm the Inve

AI's Rapid Expansion May Lead to Regulatory Concerns

AI and other technologies have proved to make human work easy but after growing potential effects of the new technology, Massachusetts' securities authorities have opened an inquiry into the usage of artificial intelligence (AI) in the securities sector.

On August 3, Secretary of the Commonwealth William Galvin of Massachusetts formally initiated an investigation into how businesses engage with Massachusetts investors when using AI.

A number of registered and unregistered companies that were known to be utilizing or developing AI for commercial reasons in the securities sector were given letters of inquiry by the commonwealth's securities division on August 2. The authority wanted information on how businesses may be using AI in their operations.

Galvin said in a statement, "I am concerned that this technology could result in harm to investors," "If deployed without the guardrails necessary to ensure proper disclosure and consideration of conflicts, I am concerned that this technology could be harmful to investors."

Requests for comments were not immediately answered by company representatives. Following a proposal by the U.S. Securities and Exchange Commission to require broker-dealers to avoid any conflicts of interest arising from the use of artificial intelligence on trading platforms, the inquiry was launched a week later.

As a result of the technology's explosive expansion in recent years, AI has rapidly become a global regulatory problem. Major tech businesses made a dramatic increase in the use of AI during their earnings calls in the second fiscal quarter of 2023. Companies like Intel, for instance, spoke about AI approximately 300% more frequently in Q2 2023 than in its first-quarter call.

However, several significant authorities have been concerned about the possible problems associated with AI for some time. For instance, in 2017, the Financial Stability Board (FSB) expressed worries regarding the use of AI and machine learning in the banking sector.

The FSB explicitly highlighted that a selected few major technology companies were increasingly providing AI and machine learning services. "There is the potential for natural monopolies or oligopolies," the FSB stated, adding that competition-related problems can result in hazards to financial stability.

The authorities asserted at the time that "there would be major repercussions in the world of finance" if one of them experienced a significant interruption or collapse.

Also Read: Bitget Report: 44% of Gen Z Users Engage in Copy-Trading

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