On 27 March 2025, United States Securities and Exchange Commission (US SEC) Commissioner Caroline A. Crenshaw delivered a speech at the US SEC’s Roundtable on Artificial Intelligence in the Financial Industry, held in Washington D.C. US SEC Commissioner Caroline A. Crenshaw discussed the urgent need for greater definitional clarity, robust governance structures, and regulatory foresight as artificial intelligence (AI) continues to transform the financial ecosystem.
Commissioner Crenshaw revisited the July 2023 proposed rule issued by the US SEC’s Divisions of Investment Management and Trading and Markets concerning the use of Predictive Data Analytics by broker-dealers and investment advisers. While the rule aimed to address potential conflicts of interest arising from AI tools interacting with investors, she noted that its reception had been mixed. Many industry participants, some of whom were present at the roundtable, criticised the proposal as overbroad, with overlapping implications for existing frameworks such as Regulation Best Interest (Reg BI) and fiduciary duties applicable to investment advisers.
This divergence in opinion, she assumed, arises from a fundamental challenge: the absence of a unified understanding of what AI truly is and how it is being applied. “No one is on the same page,” she remarked, showing how conversations about AI in financial services often result in participants speaking past one another due to imprecise or inconsistent terminology. Among the questions she posed were:
- How should we define artificial intelligence in the context of financial services?
- What are its current and anticipated use cases across broker-dealers, investment advisers, issuers, intermediaries, investors, and other participants?
- Is AI primarily a customer-facing tool or more deeply embedded in operational processes?
- Who is responsible for governance, particularly over “black box” models whose decision-making logic remains opaque even to their developers?
Commissioner Crenshaw also pressed for clarity on oversight structures. She questioned what regulatory mechanisms exist to ensure that fiduciary duties and professional obligations are upheld when AI systems are used to automate or influence trading decisions, client communications, or capital deployment. She further raised the issue of AI-related disclosures:
- what is being communicated to investors, and is that information adequate and consistent?
She warned against the systemic risks AI could pose if left unchecked, not only in the form of investor harm, but in the potential for fraud, unanticipated market volatility, and the erosion of public trust in financial systems. US SEC Commissioner Caroline A. Crenshaw described AI as a “sea-change” in technology: one that will inevitably reshape how markets operate and how participants interact. She noted that the core challenge is ensuring the US SEC is prepared to meet this change with the necessary foresight, tools, and engagement.
(Source: https://www.sec.gov/newsroom/speeches-statements/peirce-remarks-ai-roundtable-032725)
