Enforcement Risk Beyond AI Washing
Public disclosures and AI washing aside , the SEC is also targeting investment advisers and is in the process of conducting sweep examinations requesting , among other things , a description of AI models used by the advisers , copies of written supervisory policies and procedures related to AI , and any AIrelated security measures .
And , of course , the SEC is not alone . While Congress is not likely to pass any national AI regulation soon — unlike the European Union , which recently announced an agreement on its comprehensive AI Act that implements transparency obligations and other protections — AI enforcement in the U . S . is likely to be accomplished with existing regulatory regimes , much in the same way enforcement agencies are currently regulating the cryptocurrency industry .
To be sure , in October , President Joe Biden issued an executive order on AI , directing federal agencies to promulgate standards and guidelines , and warning that the "[ u ] se of new technologies , such as AI , does not excuse organizations from their legal obligations , and hard-won consumer protections are more important than ever in moments of technological change ."[ 7 ]
Regulatory agencies have already begun this work . For example , in June , the U . S . Commodity Futures Trading Commission announced a Cybersecurity and Emerging Technologies Task Force , intended to address the role that AI and machine learning may play in violations of the Commodity Exchange Act and CFTC regulations . Similarly , in November , the Federal Trade Commission authorized the use of compulsory process in nonpublic investigations involving products or services that use — or claim to use — AI .
Needless to say , as the use of AI continues to expand , so too will the agencies ' enforcement efforts . To avoid potential enforcement actions , as well as shareholder actions that often follow , companies should take precautions to ensure compliance with existing AI regulatory frameworks , and confirm that their public statements , including formal disclosures , regarding their AI capabilities are accurate and not misleading .
As with all reporting , the best defense against future litigation and investigation related to AI disclosures is a robust compliance program with controls for reporting and verification to ensure that all public statements are accurate and not misleading .
David A . Shargel is a partner at Bracewell LLP .
Rachel B . Goldman is a partner and co-head of the environmental , social and governance practice at the firm .
Patrick J . Morley is an associate at the firm .
The opinions expressed are those of the author ( s ) and do not necessarily reflect the views of their employer , its clients , or Portfolio Media Inc ., or any of its or their respective affiliates . This article is for general information purposes and is not intended to be and should not be taken as legal advice .
[ 1 ] The state of AI in 2023 : Generative AI ' s breakout year . ( 2023 , August 1 ). McKinsey &