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Gary Gensler Raises Concerns Over Financial Advisors Using AI

2 mins
Updated by Kyle Baird
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In Brief

  • SEC Chair Gary Gensler warns that AI could lead to financial advisors prioritizing their interests over clients.
  • Gensler emphasizes the need for advisory firms to neutralize conflicts of interest and prioritize investors.
  • Despite potential conflicts, Gensler remains optimistic about the benefits of AI in the financial industry.
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SEC Chair Gary Gensler has highlighted the potential risk of financial advisors placing their own interests above those of clients due to artificial intelligence (AI).

“Today’s predictive data analytics models also provide an increasing ability to make predictions about each of us as individuals,” he declared.

Gary Gensler Calls On Financial Advisors To Disclose AI Conflicts

According to a recently prepared testimony, the United States Securities and Exchange Commission (SEC) chair, Gary Gensler, highlighted the potential of financial advisory firms being able to use AI predictive analytics tools at the expense of their customers:

“If a firm’s optimization function takes the interest of the firm into consideration as well as the interest of the investor, this can lead to conflicts of interest.”

Gensler outlines that firms need to report situations that allow firms to place their interests ahead of investors’ interests. He warns that firms will need to show efforts to eliminate or “neutralize” these conflicts.

He explains that this has been going on for several months. In July, the SEC issued a proposal to financial institutions to report on these conflicts when dealing with investors.

Gensler’s Overall Outlook On AI

However, he maintains an optimistic outlook on the adoption of this innovative technology in the financial sector:

“Such analytics and narrowcasting have the potential benefits of greater financial inclusion and enhanced user experience.”

On September 27, Gensler will be standing before the US House of Representatives Committee on Financial Services to deliver his testimony.

At the outset, he will emphasize that the views he expresses belong to him as the SEC chair. He is not representing the collective stance of his fellow commissioners.

Recent data from Statista forecasts that the AI market will attain a value of two trillion US dollars by 2030.

AI market size worldwide in 2021 with a forecast until 2030 (in millions of USD). Source: Statista
AI market size worldwide in 2021 with a forecast until 2030 (in millions of USD). Source: Statista

On August 3, BeInCrypto reported on Gensler’s belief that AI will cause the next financial collapse. He asserted that deep learning possesses the capacity to disrupt financial markets.

From a macro perspective, Gensler has taken a relatively neutral position on AI.

He emphasized in a prior speech that AI has the potential to enhance the financial industry and also make significant contributions to healthcare and scientific advancements.

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Ciaran Lyons
Ciaran is a cryptocurrency journalist based in Sydney, Australia. He particularly enjoys writing about CBDC developments and the practical implementations of cryptocurrency in real-world scenarios. He has also appeared across major television networks in Australia including Channel Ten, Channel Nine and SBS TV. Prior to his foray into cryptocurrency, Ciaran worked as a presenter on national radio station Triple J.