AI regulation will hurt financial firms, says Ted Cruz

Senators in the US are hitting back at attempts to regulate AI in the financial industry, which they call a “war on technology”.

Republicans, including former Presidential contender Ted Cruz, have introduced a bill that would block new rules proposed by the US finance watchdog, the Securities and Exchange Commission (SEC). The suggested rules call for limits and transparency on the use of artificial intelligence and other technology that could give financial investment firms an unfair edge.

The SEC is concerned that Wall Street and investment firms around the country could use predictive data analytics and similar technologies to put their own interests ahead of their investors, perhaps by guiding people towards their own products.

In July last year, the regulator proposed to extend existing legislation to eliminate or neutralise conflicts of interest arising when brokers and investment advisers use technology that optimises for, predicts or directs investments.

Protecting Innovation in Investment Act

Senators Ted Cruz (Texas) and Bill Hagerty (Tennessee), however, argue that this restricts the opportunity for innovation in the investment industry. They’ve countered the SEC’s suggestions by introducing their Protecting Innovation in Investment Act to Congress this week.

In a fiercely worded press release, staunch conservative free trade advocate Cruz accused the SEC of a “war on technology”, and pledged to “halt this crusade in its tracks”.

Hagerty added that the SEC’s rules are attempts to “overregulate… micromanage and hinder” innovative technology.

They argue that the SEC’s wording could be applied to everything from AI to simple spreadsheets.

According to their statement, the bill has the backing of various trade bodies in insurance, banking and investment sectors. These industry bodies have already complained about what they see as the excessively wide-ranging nature of the SEC’s new rules.

Benefits of AI to financial investors

The SEC accepts that new technology like AI can be good for people investing their money with financial firms by boosting efficiency and returns. But companies could also use the technology to make recommendations that benefit the firm more than the investor. The speed and scalability of current technology mean conflicts of interest could cause harm “in a more pronounced fashion and on a broader scale than previously possible”.

The proposed rules also push for more transparency and accountability. Investment firms would be required to have written procedures governing their use of technology, as well as documenting the technology they use. But the opposing senators protest that this would be too difficult and time-consuming, if not impossible.

With Wall Street throwing its weight around, the SEC is clearly in for a fight over the policing of new technology. The financial sector could be a key battleground in the war over AI regulation, which is still evolving and facing fierce criticism from companies looking to use the technology to drive growth and profits, even at the expense of workers and customers.

You might also be interested: Regulating AI: the case for a mechanisms-based approach

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