SEC Chair Gensler Considers Rewriting Proposals on AI Advising and Crypto Custody

News | June 27, 2024 By:

On Thursday, June 13, 2024, U.S. Securities and Exchange Commission Chair Gary Gensler updated senators on proposals addressing broker-dealers’ use of artificial intelligence and the handling of customers’ cryptocurrency assets.

Gensler testified before a Senate appropriations subcommittee. He said SEC staff is considering rewriting a proposal targeting the use of predictive analytics by broker-dealers. This technology could allegedly harm investors. The SEC had received significant feedback both supporting and opposing the proposal. Gensler added that the safeguarding rule proposal, requiring investment advisers and funds to custody cryptocurrency assets with qualified providers, may also be reopened based on public comments.

Both proposals were discussed by senators in light of a recent court ruling narrowing the SEC’s power over private fund disclosures. Gensler acknowledged the ruling’s impact but said the commission continues analyzing effects on existing proposals covering AI advising and crypto storage. He noted the SEC hasn’t decided whether to appeal the ruling.

Gensler also asked staff to update Regulation Fair Disclosure, which prevents selective disclosure of material nonpublic information. The 24-year-old rule currently excludes private foreign issuers, which an update could include.

At the hearing, Gensler and CFTC Chair Rostin Behnam requested increased funding for fiscal year 2025. Gensler supported the $2.6 billion proposed for the SEC, up from $2.2 billion last year. This growth is needed as markets expand faster than the commission’s capacity.

Behnam sought $399 million for the CFTC, a 9% increase to regulate increasingly complex derivatives and provide needed protections for the rapidly growing retail participation in digital asset markets like bitcoin and cryptocurrencies if regulatory authority expands.