Enforcement Crackdown on AI-Washing to Outlast Trump Rollbacks
Regulators are cracking down on companies that make misleading claims about artificial intelligence, known as AI washing. Despite expectations of deregulation under the new administration, policing these false statements remains a priority for the Securities and Exchange Commission (SEC), Federal Trade Commission (FTC), and state securities regulators. Enforcement through traditional fraud mechanisms is expected to continue, even as rulemaking efforts specifically targeting AI washing are unlikely to progress with the start of Donald Trump’s second term.
AI washing involves companies exaggerating the role of AI in their operations, sometimes described as “old school fraud using new school buzzwords” by former SEC director, Gurbir Grewal. This practice has attracted regulatory attention, with the FTC emphasizing holding companies accountable for deceptive claims around AI technologies.
Many companies have jumped on the AI bandwagon, with over 40% of S&P 500 firms mentioning AI in their SEC filings in 2023. The SEC has already taken enforcement actions against companies for overstating their use of AI, signaling heightened scrutiny in this area moving forward.
Although rulemaking related to AI may face hurdles under the new administration, enforcement actions targeting AI washing are expected to continue under existing laws and regulations. While Trump has expressed plans to rescind President Joe Biden’s executive order on AI, federal agencies like the SEC and FTC are committed to addressing deceptive AI practices, regardless of changes in leadership.
Overall, the focus remains on protecting investors and consumers from misleading AI claims, ensuring transparency and accountability in the ever-evolving landscape of technology and finance regulation.
