In a landmark decision, the US Securities and Exchange Commission (SEC) has fined two companies for falsely advertising the use of artificial intelligence (AI). This practice, known as "AI washing"," refers to the promotion of AI technologies without actual implementation. It's similar to the concept of "greenwashing" for companies that boast about their environmental responsibility without taking concrete action.
Delphia Inc. and Global Predictions must pay a total of $400,000 in penalties after making misleading statements about their use of AI. The SEC announced the sanctions to protect investors and ensure that companies don't use AI in a misleading or purely marketing-oriented manner. SEC Chairman Gary Gensler stated, "Investment advisers shouldn't mislead the public by claiming they're using an AI model when they aren't. This AI laundering harms investors."
The 'AI Washing' phenomenon
This practice has increased recently as AI has gained popularity in business. Many companies are using AI as a marketing tool without actually integrating the technology into their operations, creating false expectations and damaging investor and consumer confidence. Gensler warned of the dangers of false claims around new technologies: "We have seen time and time again that new technologies create excitement among investors and false claims from those claiming to use them."
Canadian company Delphia claimed it was using AI and machine learning with customer data to improve investments. They promised to "predict the latest investment trends ahead of all other competitors" Such pure marketing costs 225,000 dollars. US-based Global Predictions must pay $175,000 for claiming to be the "first regulated financial advisor using AI" Despite the fines, the amounts are low as the SEC admits it's difficult to determine how much these AI claims contributed to their profits.
Regulations
Europe has also begun to look into this phenomenon. European authorities have become aware of marketing strategies that exaggerate AI capabilities and have begun to look at specific regulations to protect consumers and investors. The European Commission is considering stricter regulations under the AI Act, which has already been adopted and will come into force in the coming months. The law aims to prevent 'AI-washing" by mandating transparency in AI development and implementation, as well as stricter controls to ensure that companies' claims are accurate and verifiable.
The future
AI Washing harms investors and the public by exaggerating or distorting companies' use of AI, creating false expectations and undermining user confidence. The US Securities and Exchange Commission (SEC) is leading the fight against this problem in the US, while in the EU, proposed European Commission regulations require companies to use AI transparently and responsibly. The fines imposed on Delphia Inc. and Global Predictions send a clear message to companies worldwide: honesty is essential when dealing with new technologies.
