Galvin launches investigation into brokers’ use of AI

investmentnews.com:

The state of Massachusetts is concerned about what it calls a growing and potentially unchecked use of artificial intelligence in the securities industry.

On Wednesday, Secretary of the Commonwealth William Galvin announced that his securities division would launch an investigation into how firms are using AI to engage with Massachusetts investors. The office has sent letters to six companies — JPMorgan Chase, Morgan Stanley, Tradier Brokerage, US Tiger Securities (the U.S. broker-dealer division of Tiger Brokers), Savvy Advisors and Hearsay Systems — seeking information on how they are using AI in their business activities. ETrade, which is owned by Morgan Stanley, also received a letter.

Of particular concern is the supervision firms have in place over AI engines to ensure the technology is not putting the firm’s interests ahead of clients’ interests, Galvin said in a statement.

“If deployed without the guardrails necessary to ensure proper disclosure and consideration of conflicts, I am concerned that this technology could result in harm to investors,” he said.

Galvin is correct to be investigating firms’ use of AI, as the technology remains largely untested and unproven, said Ric Edelman, founder of the Digital Assets Council of Financial Professionals. There are many instances of AI generating false, yet convincing, information, and tools like ChatGPT make it too easy for advisors to create client-facing content that hasn’t been approved by compliance.

“State and federal securities regulators need to insure that advisors and their firms are using the technology appropriately and responsibly, and maintain complete records of their usage,” Edelman said in an email. “Done correctly, generative AI can and will be a