SEC chief flags risks of predictive AI in online brokers and robo advisors as agency weighs crackdown, report says

• The SEC's Gary Gensler highlighted the risks of AI that trading platforms have been embracing, Bloomberg reported.
• "The predictive-data analytics also raises a number of important challenges: conflicts of interest, bias, and systemic risk," he said.
• Another thing the SEC chair will look into is stock market trading practices.

US Securities and Exchange Commission Gary Gensler on Tuesday highlighted the risks of artificial intelligence that several trading platforms, robo advisors, and online brokers have been embracing.

"Artificial intelligence and predictive data analytics are changing many aspects of our economy," he said during a Practicing Law Institute virtual conference, Bloomberg reported. "The predictive-data analytics also raises a number of important challenges: conflicts of interest, bias, and systemic risk."

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Gensler, who once taught a blockchain class at MIT's Sloan School of Management, said his agency is looking into specific prompts that gamify trading.

For instance, Robinhood's famous confetti animation, which pops after users make their first trade, has appeared in marketing ads and has become a symbol of the trading app.

But in March, Robinhood announced it is getting rid of the confetti after being under scrutiny for making trading too much like a fun pastime for novice investors. Critics have blamed the feature for the perceived gambling tendencies of retail investors, especially during the height of the GameStop short-squeeze frenzy earlier this year.

Other questions Gensler has, according to Bloomberg, include whether analytical tools "reinforce societal inequities."

He also reiterated Tuesday that the SEC is looking into trading practices, such as the controversial payment-for-order flow.

Last month, Robinhood's chief legal officer Dan Gallagher told Barron's that banning payment for order flow would be "pretty draconian" and would be harmful to the retail investors.