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SEC Sharpens Focus on AI Misuse to Curb Industry Misrepresentation

The U.S. Securities and Exchange Commission (SEC) is ramping up its examination of AI tools used by financial firms, reflecting growing regulatory concerns about the risks posed by emerging technologies.

A report by the SEC’s Division of Examinations revealed that the agency will focus on how firms communicate their use of AI, ensuring compliance in areas like trading, anti-money laundering, and fraud detection. The scrutiny responds to concerns about “AI washing,” where companies exaggerate AI usage to attract investors.

This year, the SEC fined two firms—Delphia and Global Predictions—for falsely claiming they incorporated AI into their operations.

Meanwhile, other agencies are also intensifying their focus on AI misuse. In September, the Federal Trade Commission (FTC) launched “Operation AI Comply,” penalizing companies for deceptive AI claims, targeting firms like DoNotPay and Rytr.

The SEC’s latest initiative aims to ensure financial institutions balance automation with transparency and accountability. With the AI trading market expected to soar to $50 billion by 2033, the SEC intends to mitigate risks while promoting accurate AI representation across the industry.

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