Summary

The Securities and Exchange Commission and Federal Trade Commission are on the lookout for unsubstantiated claims surrounding artificial intelligence (AI).

The Upshot

• SEC Chair Gary Gensler recently warned against making unfounded claims around artificial intelligence, or “AI washing.”
• The FTC issued a warning in February, advising businesses to “keep AI claims in check.”

The Bottom Line

This increased regulatory interest and activity should serve as a warning to businesses that increased regulation is coming. Thus, businesses should be wary and thoughtful in marketing their products and services as incorporating AI.

A rise in the number of AI offerings has sparked concern among regulatory agencies as to the dangers of so-called “AI washing.” The term refers to businesses making unsubstantiated claims surrounding artificial intelligence.

Last week, Gary Gensler, the Chair of the Securities and Exchange Commission, warned businesses to avoid AI washing. He was speaking at a conference hosted by news outlet Messenger. This follows requests for information sent by the SEC’s examination division to investment advisers, in which the SEC asked for details on AI-related marketing documents, compliance training, and how algorithmic models that may incorporate “predictive analytics” are used to manage client portfolios.

The SEC warning echoes a similar warning issued by the Federal Trade Commission in February to businesses that it would be on the lookout for unsubstantiated AI claims in advertising. Of particular concern are exaggerated capabilities of products or services incorporating AI and branding products or services as “AI powered” when they do not, in fact, incorporate artificial intelligence technology. The FTC has been particularly active in this area, issuing a warning in February to “keep your AI claims in check,” advising businesses that “performance claims would be deceptive if they lack scientific support or if they apply only to certain types of users or under certain conditions,” and that businesses need “adequate proof” to substantiate a claim that AI improved their product. The business guidance continued, “[i]f you think you can get away with baseless claims that your product is AI-enabled, think again. In an investigation, FTC technologists and others can look under the hood and analyze other materials to see if what’s inside matches up with your claims.” The FTC also noted that “merely using an AI tool in the development process is not the same as a product having AI in it.”

This increased regulatory interest and activity should serve as a warning to businesses that increased regulation is coming. Thus, businesses should be wary and thoughtful in marketing their products and services as incorporating AI.

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