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Regulation and Compliance > State Regulation > Massachusetts

JPMorgan, Morgan Stanley Face Regulatory Scrutiny Over AI Use

By Melanie Waddell

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Secretary of State William Galvin, Massachusetts’ top securities regulator, has launched a sweep into the use of artificial intelligence in the securities industry — sending letters to JPMorgan, Morgan Stanley, Tradier Brokerage, US Tiger Securities, E-Trade, Savvy Advisors and Hearsay Systems.

A spokesperson for Galvin’s office told ThinkAdvisor Thursday that each letter “varies slightly by entity,” but that Galvin’s office is not releasing the letters’ content at this time.

“State securities regulators have an important role to play when it comes to AI and its impact on main street investors,” Galvin said Thursday 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.”

The letters were sent to ”a number of registered and unregistered firms known to be using or developing the use of AI for business purposes” in the securities industry, according to his office.

The Massachusetts Securities Division “has been aware of and has been looking into AI issues for some time,” the spokesperson told ThinkAdvisor Thursday in an email. “This follows the Division’s longstanding interest in emerging technologies used by financial firms.”

Galvin announced in a press release Thursday that his office sent the letters on Wednesday.

The letters request that the firms answer questions by Aug. 16 that relate to disclosure and supervisory procedures, as well as questions to “select firms” about any marketing materials provided to investors that may have been created using AI.

Galvin cited concern “about the growing and potentially unchecked use” of AI.

The letters, Galvin’s office said, seek information “on the manner in which the entities may be using artificial intelligence in their business and activities.”

Of particular interest to Galvin are the supervisory procedures that firms have in place regarding AI, “and whether those systems ensure that the AI will not put the interests of the firm ahead of the interests of their clients,” the statement said. “For those firms that have already deployed AI, the Division will also be evaluating the disclosure processes in place.”

Melanie Waddell

@Think_MelanieW

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