Speaking to the Yale Law School on Tuesday – the day before Valentine’s – the Chair of the US Securities and Exchange Commission lines out the landscape as artificial intelligence comes sweeping across the securities industry on many simultaneous fronts. Have no worries, he seems on top of it all – having watched all those robot movies. His speech is here.
Admitting that he is “a bit of a rom-com guy”, Gary Gensler refrained from following his deputy’s suggestion of starting the speech from the dark 2014 film Ex Machina (trailer here), starring Alicia Vikander, though he eventually gets to it. For keynote, he chose instead HER, with Scarlett Johansson (trailer). The list of other film references is long; check out the whole speech here.
Structured, however, by the regulatory environment around securities, the speech goes into opportunities and challenges across both macro and micro aspects, including risks of cheats and hallucinations. Overall, he stands by the spirit that companies should have far-reaching freedom to act in the market, as long as they are transparent. “If a company is raising money from the public […] it needs to be truthful about its use of AI and associated risk.”
Maybe it is material?
“As AI disclosures by SEC registrants increase, the basics of good securities lawyering still apply. Claims about prospects should have a reasonable basis, and investors should be told that basis. When disclosing material risks about AI—and a company may face multiple risks, including operational, legal, and competitive—investors benefit from disclosures particularized to the company, not from boilerplate language,” says Gary Gensler.
“Companies should ask themselves some basic questions, such as: ‘If we are discussing AI in earnings calls or having extensive discussions with the board, is it potentially material?’ These disclosure considerations may require companies to define for investors what they mean when referring to AI. For instance, how and where is it being used in the company? Is it being developed by the issuer or supplied by others?”