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The Story: If you’re an investment adviser that uses artificial intelligence, the SEC may want to have a word with you.

The Securities Exchange Commission Chair Gary Gesler has expressed continued skepticism about AI and its risks, and the agency is now probing investment advisors on how they use and supervise the technology within their firms.

According to a letter obtained by Vigilant Compliance, a regulatory compliance consulting firm, that was made available to Richard Vanderford at the Wall Street Journal, the SEC is looking to learn more about, “topics including AI-related marketing documents, algorithmic models used to manage client portfolios, third-party providers and compliance training.”

Despite the agency’s sweep, it doesn’t appear that there is suspicion of foul play or misconduct by investment advisors. An SEC source told the Journal that its inspections across firms are not public, and, in fact, the agency has not even confirmed or denied if the examinations exist.

However, this would not be the first time the SEC has involved itself in AI. In July of this year, the agency proposed new rules around AI use, including requiring “firms to neutralize any conflicts in which AI put the firm’s interests above a client’s.”

Establishing rules may be difficult, though. Amy Jane Longo, partner at law firm Ropes & Gray, believes that even if the SEC wants to crack down on AI use within investment firms, the technology is already so widespread it will be tough to enact meaningful change or regulation.

Expert Take: Andy Harrison, CEO and general partner at Section 32, doesn’t expect the SEC to establish rules around investment advisers’ use of AI anytime soon. He does think rules will develop, however, but through internal guardrails set by the industry itself:

“I don’t believe [the SEC] will. In my experience, a lot of it becomes self-regulation by industry players as opposed to hard regulation.”

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