US lawmakers urged the SEC to clarify AI-powered trading tool rules, citing investor risk

A group of Democratic members of the US House of Representatives has called on the Securities and Exchange Commission (SEC) to provide a clear regulatory roadmap regarding the growing use of AI-powered trading tools. Lawmakers expressed their concerns that the increasing adoption of these tools, particularly by individual investors, poses new risks for investor protection, accountability, and market oversight.

Key issues highlighted in lawmakers’ letter to the SEC

In their letter to the SEC, chaired by Paul Atkins, the lawmakers argued that AI-driven trading agents largely operate outside the current regulatory framework. They noted that these tools are already capable of making significant investment decisions, and emphasized the need for clearly defined regulatory supervision for rapidly advancing technologies in finance.

The letter requested that the SEC clarify what investor safeguards are already in place, under what conditions these AI tools must be registered with the agency, and whether existing authorities are sufficient to oversee such technologies. Lawmakers also asked the SEC to assess if additional powers from Congress might be necessary in this field.

Potential implications for crypto assets

According to the lawmakers, AI-based trading applications are expected to expand beyond stocks to include crypto assets, options, futures, and event contracts. Given this anticipated expansion, they asserted that it is crucial to clarify regulatory guidelines at an early stage.

Mini glossary: Event contracts are agreements with payment structures based on the outcome of a specific event. Futures contracts, meanwhile, are derivatives that involve buying or selling an asset at a predetermined price at a future date.

The lawmakers argued that regulatory gaps could become more pronounced as automated decision-making systems spread into increasingly complex markets. They urged the SEC to reconsider both market operations and the risks individual investors may face in this evolving landscape.

Finance platforms respond to new developments

Major financial platforms have already begun rolling out AI-driven investment tools, the lawmakers highlighted. Earlier this month, Coinbase, one of the largest US-based cryptocurrency exchanges, announced the launch of an AI trading assistant integrated into its platform.

Coinbase described the new tool as a registered financial advisor with both the SEC and the Commodity Futures Trading Commission. However, lawmakers said that, in light of such developments, it is essential to clarify which rules apply to these emerging market tools.

The letter requested the SEC to respond by July 31, specifying details about existing protections, the scope of registration requirements, and whether further legal authority is needed to oversee AI-enabled trading technologies.

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