As businesses increasingly benefit from using artificial intelligence, the need for a regulatory framework grows. After all, generative AI chatbots, like ChatGPT, regularly produce incorrect output and falsehoods, commonly known as hallucinations. Additionally, other concerns of using AI in business caused governmental agencies like the SEC to consider introducing new regulations. This is especially the case with the predictive data analytics (PDA) used in securities trading.
Let’s examine the increased attention paid to AI by various agencies at the federal level. Leverage these insights to ensure your company’s AI-related projects stay in compliance before and after their deployment. Understanding the potential regulatory framework surrounding AI helps your company build (or use) modern systems to transform your operations.
What’s the Importance of Regulations for AI?
The SEC plans New Regulations on the Use of AI and PDA
A major reason the SEC wants new regulations on AI and PDA involves conflicts of interest and enhanced transparency. A broker needs to ensure their clients and customers understand that AI provides actionable insights influencing their trading strategy. For example, PDA depends on trained machine learning models using historical securities data, predicting future performance. Customers of these traders must understand the role of artificial intelligence in the trades being made in their name.Strategies for Managing Stricter Regulations on AI, Machine Learning, and PDA
Knowing that stronger regulations on AI in business are coming, businesses need to be ready for any changes to their operations. Here are a few strategies to better prepare for a stricter regulatory framework.- Create a Framework for AI Governance: Build a team made up of different business stakeholders to define how AI is used at the organization. Develop policies focusing on AI/PDA usage when it involves customer interactions. Also create an oversight committee ensuring compliance with these policies.
- Assess Current and Future Use-Cases for AI: Perform an internal analysis of existing systems already using AI as well as future use-cases for it. Ensure existing and new applications apply the policies and procedures from the AI governance framework. Evaluate the scalability of existing AI-powered applications as part of this process.
- Analyze Conflicts of Interest related to AI Usage: A financial organization’s approach to handling conflicts of interest must take into account the increased usage of AI. This needs to happen before the deployment of new AI-powered systems or the enhancement of existing applications. Ensure employees are trained in and conduct testing of applications in this area before deployment into production.
