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SEC confirms use of artificial intelligence in financial monitoring

The SEC recently admitted the use of Artificial Intelligence for financial security, which has its benefits, but also raises its own concerns.

A laptop computer opened to a technical financial program aided by artificial intelligence.

Artificial Intelligence is also used to monitor the financial industry for indications of
fraud and manipulation. Artificial Intelligence is increasingly necessary in trade surveillance. AI helps compliance officers and financial regulators process an ever-growing stream of data and use that data to identify and predict suspicious activity using machine learning. AI can expedite data and collection analysis, pattern recognition, and network analysis. AI-powered surveillance systems boast higher accuracy than traditional rule-based systems when detecting suspicious trading activity, and can also reduce the number of false positives.

While AI offers benefits for trade surveillance, it also presents challenges, such as:

Data availability. AI-powered surveillance systems require large amounts of data to train and operate, which can be difficult and expensive to obtain and label.

Interpretability. AI models can be complex and difficult to interpret, making it difficult for users to understand why the model flagged a trade as suspicious.

Bias. AI models can be biased by the data they are trained on. If training data is insufficient, unrepresentative, or full of errors, AI will reflect those shortcomings.

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Gary Gensler, Chairman of the Security and Exchange Commissions, confirms using
artificial intelligence for financial surveillance during a Senate oversight hearing—just one of several lawsuits and litigations that Gensler and SEC have faced lately.

Banks and other large-scale financial institutions are often the site of various cyberattacks. DDoS attacks are volumetric and used as a diversionary tactic, attempting to slow or stop a targeted network by overwhelming servers with packet requests. At the same time, others exploit transmission control protocol (TCP) vulnerabilities. This comes after a series of foreign cyberattacks in August and September of 2023. Additionally, one of the largest-scale financial cyber attacks in history. Paige Thompson, a former Amazon Web Services (AWS) employee, hacked the Capital One servers and gained access to over 100 million customer account records and credit card applications.

SEC Chair Gary Gensler told Senate lawmakers on Tuesday that the Securities and Exchange Commission is using artificial intelligence models to conduct market surveillance and assist some enforcement investigations. Gensler said that the technology is used “in some market surveillance and enforcement actions”. Furthermore, he stated it is utilized “to look for patterns in the market” not dissimilar to “self-regulatory organizations” that use it as well.

Gensler noted that the use of artificial intelligence was the reason that the SEC is
requesting greater SEC funding. Specifically, he expressed the agency’s desire to build up its technological presence. This, in turn, would increase its ability to engage with these kinds of tools.

Despite the SEC existing as an independent agency of the United States government, the admission by Gary Gensler of the SEC using AI for surveillance, has people questioning if it’s only a matter of time until the United States government uses Artificial Intelligence for their own devices. And if the United States government implements AI for surveillance (if they haven’t already) will it be used as innocuously as it is by the SEC?

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Nicole is a recent graduate (okay fine, a recent-ish graduate) of Texas State University-San Marcos where she received a BA in Psychology. When she's not doing freelance writing, she's doing freelance Public Relations. When she's not working, she's hanging out with dogs or her friends - in that order. Nicole watches way too much Netflix and is always quoting The Office. She has an obsession with true crime and sloths.


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