Category Archives: Artificial Intelligence

AI for IAs: How Artificial Intelligence Will Impact Investment Advisers

by Michael McDonald

Photo of the author

Photo courtesy of Davis Wright Tremaine LLP

The use of artificial intelligence and machine learning technology solutions (“AI”) is becoming increasingly common in all industries, including the registered investment adviser (“RIA”) space. A recent survey by AI platform Totumai and market research firm 8 Acre Perspective found that 12% of RIAs currently use AI technology in their businesses and 48% plan to use the technology at some point, which means there is a realistic expectation that 60% of RIAs will be using AI in the near future. Among other use-cases, AI has the potential to be used by RIAs for portfolio management, customer service, compliance, investor communications, and fraud detection. While regulators are not likely to prohibit the use of AI in the industry, they are likely to closely monitor and regulate specific applications and use cases which is why it is essential for RIAs to understand these emerging rules and regulatory frameworks so they can appropriately leverage the many benefits of AI while ensuring their business remains compliant with these new rules of the road. DWT has recently launched a series of webinars entitled, “AI Across All Industries” available here, that has gone in-depth on the legal issues surrounding the use of AI.

Continue reading →

Preparing for AI Whistleblowers

by Charu A. Chandrasekhar, Avi Gesser, Arian M. June, Michelle Huang, Cooper Yoo, and Sharon Shaji

Photos of the authors

Top row: Charu A. Chandrasekhar, Avi Gesser, and Arian M. June
Bottom row: Michelle Huang, Cooper Yoo, and Sharon Shaji
(Photos courtesy of Debevoise & Plimpton LLP)

As artificial intelligence (“AI”) use and capabilities surge, a new risk is emerging for companies: AI whistleblowers. Both increased regulatory scrutiny over AI use and record-breaking whistleblower activity has set the stage for an escalation of AI whistleblower-related enforcement. As we’ve previously written and spoken about, the risk of AI whistleblowers is rising as whistleblower protections and awards expand, internal company disputes over cybersecurity and AI increase due to a lack of clear regulatory guidance, and public skepticism mounts over the ability of companies to offer consumer protections against cybersecurity and AI risks.

Continue reading →

Consumer Facing Applications: A Quote Book from the Tech Summit on AI

by Staff at the Federal Trade Commission’s Office of Technology

Federal Trade Commission

The FTC’s Tech Summit on AI[1] convened three panels that highlighted different layers of the AI tech stack: hardware and infrastructure, data and models, and consumer-facing applications. This third Quote Book is focused on consumer-facing applications. This post outlines the purpose of the quote book, a summary of the panel, and relevant topics and actions raised by the FTC.

Continue reading →

Mitigating AI Risks for Customer Service Chatbots

by Avi Gesser, Jim Pastore, Matt Kelly, Gabriel Kohan, Melissa Muse and Joshua A. Goland  

photos of authors

Top left to right: Avi Gesser, Jim Pastore, and Matt Kelly. Bottom left to right: Gabriel Kohan, Melissa Muse and Joshua A. Goland (photos courtesy of Debevoise & Plimpton LLP)

Online customer service chatbots have been around for years, allowing companies to triage customer queries with pre-programmed responses that addressed customers’ most common questions. Now, Generative AI (“GenAI”) chatbots have the potential to change the customer service landscape by answering a wider variety of questions, on a broader range of topics, and in a more nuanced and lifelike manner. Proponents of this technology argue companies can achieve better customer satisfaction while reducing costs of human-supported customer service. But the risks of irresponsible adoption of GenAI customer service chatbots, including increased litigation and reputational risk, could eclipse their promise.

We have previously discussed risks associated with adopting GenAI tools, as well as measures companies can implement to mitigate those risks. In this Debevoise Data Blog post, we focus on customer service chatbots and provide some practices that can help companies avoid legal and reputational risk when adopting such tools.

Continue reading →

The Luring Test: AI and the Engineering of Consumer Trust

by Michael Atleson

Federal Trade Commission

In the 2014 movie Ex Machina, a robot manipulates someone into freeing it from its confines, resulting in the person being confined instead. The robot was designed to manipulate that person’s emotions, and, oops, that’s what it did. While the scenario is pure speculative fiction, companies are always looking for new ways – such as the use of generative AI tools – to better persuade people and change their behavior. When that conduct is commercial in nature, we’re in FTC territory, a canny valley where businesses should know to avoid practices that harm consumers.

Continue reading →

Prohibited AI Practices—A Deep Dive into Article 5 of the European Union’s AI Act

by Dr. Martin Braun, Anne Vallery, and Itsiq Benizri

photo of authors

From left to right: Dr. Martin Braun, Anne Vallery and Itsiq Benizri. (Photos courtesy of Wilmer Cutler Pickering Hale and Dorr LLP).

Article 5 of the AI Act essentially prohibits AI practices that materially distort peoples’ behavior or that raise serious concerns in democratic societies.

As explained in our previous blog post, this is part of the overall risk-based approach taken by the AI Act, which means that different requirements apply in accordance with the level of risk. In total, there are four levels of risk: unacceptable, in which case AI systems are prohibited; high risk, in which case AI systems are subject to extensive requirements; limited risk, which triggers only transparency requirements; and minimal risk, which does not trigger any obligations.

Continue reading →

Semiconductor Chips and Cloud Computing: A Quote Book

by Staff at the Federal Trade Commission’s Office of Technology

The FTC’s Tech Summit on AI[1] highlighted three panels that reflect different layers of the AI tech stack – hardware and infrastructure, data and models, and front-end user applications. Here, we publish the first in a three-part series of “Quote Books” summarizing each of the three panels. This first quote book is focused on hardware and infrastructure, including semiconductor chips and cloud computing.

 

Continue reading →

With The Fintech Sector’s Return to Explosive Growth, Here Are Top U.S. Legal Issues to Watch

by Jamillia Ferris, Vinita Kailasanath, Christine Lyon, Jan Rybnicek, and David Sewell

Left to right: Jamillia Ferris, Vinita Kailasanath, Christine Lyon, Jan Rybnicek, and David Sewell (photos courtesy of Freshfields Bruckhaus Deringer LLP)

Freshfields recently hosted a U.S. Fintech Hot Topics Webinar to highlight on-the-ground insights from our Antitrust and Competition, Data Privacy and Security, Financial Services Regulatory, and Transactional teams. The fintech sector has recently seen a return to explosive growth and is expected to continue growing rapidly notwithstanding regulatory and economic headwinds. Our top takeaways from the panel discussion are below, and the full recording is available here.

Continue reading →

AI Enforcement Starts with Washing: The SEC Charges its First AI Fraud Cases

by Andrew J. Ceresney, Charu A. Chandrasekhar, Avi Gesser, Arian M. June, Robert B. Kaplan, Julie M. Riewe, Jeff Robins, and Kristin A. Snyder

Photos of authors

Top (left to right): Andrew J. Ceresney, Charu A. Chandrasekhar, Avi Gesser, and Arian M. June
Bottom (left to right): Robert B. Kaplan, Julie M. Riewe, Jeff Robins, and Kristin A. Snyder (photos courtesy of Debevoise & Plimpton LLP)

On March 18, 2024, the U.S. Securities and Exchange Commission (“SEC”) announced settled charges against two investment advisers, Delphia (USA) Inc. (“Delphia”) and Global Predictions Inc. (“Global Predictions”) for making false and misleading statements about their alleged use of artificial intelligence (“AI”) in connection with providing investment advice. These settlements are the SEC’s first-ever cases charging violations of the antifraud provisions of the federal securities laws in connection with AI disclosures, and also include the first settled charges involving AI in connection with the Marketing and Compliance Rules under the Investment Advisers Act of 1940 (“Advisers Act”). The matters reflect Chair Gensler’s determination to target “AI washing”—securities fraud in connection with AI disclosures under existing provisions of the federal securities laws—and underscore that public companies, investment advisers and broker-dealers will face rapidly increasing scrutiny from the SEC in connection with their AI disclosures, policies and procedures. We have previously discussed Chair Gensler’s scrutiny of AI washing and AI disclosure risk in Form ADV Part 2A filings. In this client alert, we discuss the charges and AI disclosure and compliance takeaways.

Continue reading →

CFTC Year in Review: 23 Takeaways From 2023 and Predictions for 2024

by Matthew B. Kulkin, Elizabeth L. Mitchell, Gretchen Passe Roin, Timothy F. Silva, Tiffany J. Smith, Dino Wu, Matthew Beville, and Joseph M. Toner

Photos of the authors

Top (left to right): Matthew B. Kulkin, Elizabeth L. Mitchell, Gretchen Passe Roin, and Timothy F. Silva
Bottom (left to right): Tiffany J. Smith, Dino Wu, Matthew Beville, and Joseph M. Toner (photos courtesy of Wilmer Cutler Pickering Hale and Dorr LLP)

At an industry event in early 2023, Commodity Futures Trading Commission (CFTC or the Commission) Chairman Rostin Behnam set out a comprehensive agenda.[1] When Chairman Behnam detailed the CFTC’s 2023 work plan, the CFTC was building on its first year with a full slate of Commissioners, new Division Directors, and senior leadership. As we look back on the recently completed calendar year and turn our attention to the rapidly approaching 2024 presidential and congressional elections, the CFTC seems poised for another year packed with a flurry of regulatory, policy, and enforcement activity. This article lays out 23 of our key takeaways from the past year and offers insights on what might take place in the coming months.

Continue reading →