SEC Embraces AI For Monitoring Financial Malpractices

Utilizing AI, the SEC intensifies its vigilance over the financial sector, seeking out fraud and market discrepancies.

SEC Embraces AI For Monitoring Financial Malpractices

In a recent Senate oversight hearing, Gary Gensler, the Chair of the United States Securities and Exchange Commission (SEC), disclosed the commission's utilization of artificial intelligence (AI) tools. The primary aim? To supervise the financial sector and detect indications of fraud and market manipulation.

While Gensler had hinted at AI's integration during his speech at the National Press Club on July 17, this marks the first official acknowledgment of the technology's active role within the SEC.

During the hearing, Sen. Catherine Cortez Masto posed a question regarding the SEC's vision for AI application. Without hesitation, Gensler replied,

"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 greater funding this year, in 2024, to help build up our technology budget for the emerging technologies.”

The SEC's silent adoption of AI tools might not be shocking for some, but the absence of a formal public proclamation was unexpected. Currently, there's no legal obligation for US agencies to openly announce their internal implementation of modern technologies, with the exception being the 2022 cybersecurity incident disclosure law endorsed by President Biden.

Although Gensler remained ambiguous about the exact AI software the SEC employs, the commission has, in the past, published various reports scrutinizing AI and algorithmic operations in financial trades. It's plausible that the SEC is leveraging machine learning mechanisms designed to parse vast datasets, pinpointing anomalies and suspicious events.

Given the SEC's hostility to crypto, the transparency of the blockchain, and the existence of powerful machine learning tracking solutions for crypto transactions (for example, Chainalysis), it's practically a certainty that the agency will use AI as part of its enforcement activities in the crypto space.

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