The Securities and Exchange Commission (SEC) has taken a stance against a new trend known as "AI-washing”. This deceptive practice, similar to ESG “Green-washing”, aims to mislead the public and potential investors by overstating or simply lying about the role AI technology plays in their product or service.
In the financial services industry this practice can be especially harmful. A simple example of this process would involve an asset manager claiming their investment strategies’ employs AI technology that separates them from their competitors. Such claims might include their AI’s market prediction abilities and optimized asset allocation. All of this to convince the public that they could buy in on the Artificial Intelligence craze and gain some additional return without increasing their risk.
In truth most of these claims, while not entirely false, are usually overstated in order to capture the attention of potential investors. Although some sort of AI or machine learning tech is used, the asset manager is more than likely still pursuing typical predetermined investment strategies heavily reliant on human-decision making. The potential downside from these actions could severely affect investors’ confidence in the financial markets and undermine the credibility of legitimate AI-driven innovations, financial or otherwise.
The SEC has already fined two investment advisors in civil penalties amounting to $400,000. These fines will certainly grow if firms continue to claim the use Artificial Intelligence without first establishing the proper groundwork to use it effectively.
Here at IMP, we leverage our ever-developing AI to aid us in providing requirement coverage analysis for some of the largest asset managers in the world. Our machine learning software is fed real world data from various prospectus, IMA’s, and other guidelines allowing for it to continuously improve and for us to provide a more cost-effective service to our clients. Learn more about CLEAR Compliance® on our website.