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Compliance Risk After SEC Warning Against ' AI Washing '
By David Shargel , Rachel Goldman and Patrick Morley ( January 3 , 2024 , 5:22 PM EST )
By any measure , 2023 was a breakout year for generative artificial intelligence , with businesses of every kind racing to adopt AI tools .
As a result , regulators are keeping pace , and firms ' use of AI — including the way public companies disclose the way they use AI to the public — is likely to become an enforcement priority in 2024 and beyond . Companies and their compliance programs must take steps now to avoid costly regulatory sanctions and shareholder lawsuits .
Although the growth of generative AI has been at least a decade in the making , it has only become part of the public vernacular in the past year . Indeed , it can be difficult to believe that one of the most well-known tools , ChatGPT , was launched barely more than a year ago , in November 2022 .
David Shargel
Not surprisingly , last year ' s growth has found its way to the boardroom : A review of annual and quarterly reports filed with the U . S . Securities and Exchange Commission in 2023 shows a 42 % year-over-year increase in the occurrence of the term " artificial intelligence ."
Likewise , a recent survey by McKinsey , which polled a range of business organizations , shows that a third of all respondents are already using AI regularly in at least one function , while 40 % expect increased AI investment going forward . Only a quarter of the nearly 1,700 respondents , however , said their company was working to mitigate risks related to AI regulatory compliance .[ 1 ]
Rachel Goldman
AI Is the New Green
Regulators are taking notice of this apparent lack of self-regulation . For example , recent comments by SEC Chair Gary Gensler suggest the regulator is primed to begin turning its enforcement efforts against " AI washing ," presenting a new area of risk for some companies that are embracing AI technology .
Patrick Morley
Speaking at the Messenger AI Summit in Washington , D . C ., on Dec . 5 , Gensler cautioned reporting companies not to " AI wash ," comparing it to the practice of " greenwashing ," where a company ' s environmental or sustainability-related statements are inflated , misleading or false . Greenwashing has been a recent focus of SEC enforcement actions , and the commission ' s Climate and ESG Task Force has