Massachusetts regulators investigate investment firms' use of AI
Massachusetts securities regulators sent inquiry letters to several investment firms regarding the use of AI in client-facing tools and marketing materials
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Securities regulators from Massachusetts are investigating how investment firms are using artificial intelligence (AI) in the course of their interactions with investors due to concerns about the technology’s potentially unchecked use.
Massachusetts Secretary of State Bill Galvin, whose agency is the top securities regulator in the state, announced Thursday that his office sent letters of inquiry to several firms that are either using or in the process of developing AI tools to be used in their businesses. Among those firms are JPMorgan Chase and Morgan Stanley.
"If deployed without the guardrails necessary to ensure proper disclosure and consideration of conflicts, I am concerned that this technology could result in harm to investors," Galvin said in a statement.
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JPMorgan Chase is among the investment firms that Massachusetts securities regulators have sent inquiry letters to regarding the use of AI in client-facing tools and marketing materials. (Michael M. Santiago/Getty Images / Getty Images)
Galvin’s office said the secretary is particularly focused on what supervisory procedures firms have put in place regarding the use of AI to ensure it won’t put the companies’ interests ahead of their investor clients.
Massachusetts’ securities division also plans to evaluate the disclosure processes used by companies that have already deployed AI tools, in addition to the marketing materials some firms have created using the technology.
JPMorgan Chase declined to comment on Massachusetts’ inquiry. Morgan Stanley did not respond to a request for comment.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| JPM | JPMORGAN CHASE & CO. | 191.66 | -0.20 | -0.10% |
| MS | MORGAN STANLEY | 92.68 | +1.19 | +1.30% |
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Investment firms are implementing AI tools to make interactions with investors more efficient. (Karl-Josef Hildenbrand/picture alliance via Getty Images / Getty Images)
Banks and wealth management firms are increasingly incorporating AI into their processes for interacting with their clients and investors.
Typically, these tools take the form of helping with day-to-day interactions financial advisers have with clients, like responding to questions, to boost productivity rather than taking over tasks like executing trades or providing in-depth advice about a holistic financial plan.
This inquiry comes after Securities and Exchange Commission (SEC) Chair Gary Gensler raised concerns about AI investment tools potentially putting the interests of the company that created it or the model’s own interests, ahead of those of client investors who utilize the tools.
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The SEC recently proposed new regulations that would require broker-dealers and investment advisers to address the use of predictive data analytics and similar technologies to interact with investors, with the aim of preventing conflicts of interest.
Agency officials raised concerns that such technologies helped drive the "gamification" of retail investors’ behavior. The regulatory proposal is currently in a public content period.
Reuters contributed to this report.