House Democrats subpoena the SEC's soul: "Who's babysitting the AI trader bots?" 🤖📜

A group of Democratic US House lawmakers is pressing the Securities and Exchange Commission for details on how it oversees investment advice and trading powered by artificial intelligence. In a letter to SEC Chair Paul Atkins dated Tuesday, the legislators warned that platforms offering AI trading agents to retail traders "raises serious questions for investor protection, broker-dealer responsibilities, market integrity, and the accountability of AI developers."

The lawmakers, led by Bill Foster, the top Democrat on the House Financial Services Financial Institutions Subcommittee, and Brad Sherman, the top Democrat on the Capital Markets Subcommittee, said the tools have "operated largely outside the securities regulatory framework" while making "consequential investment decisions on behalf of retail investors." They noted that while current activity may be limited, "there are indications that agentic trading could expand to a broad range of additional products, including options, cryptocurrency, event contracts, and futures." Crypto exchange Coinbase released an AI agent earlier this month integrated into its app, which it said is an SEC- and Commodity Futures Trading Commission-registered financial adviser that can give guidance on trades. The letter also flagged that disclosures accompanying AI agents state that brokerage platforms cannot guarantee the accuracy or suitability of any AI output, nor control, monitor or audit the agents themselves.

Such disclaimers, the lawmakers wrote, "raise urgent questions about the regulatory treatment of agentic trading tools and create uncertainty regarding legal responsibility among brokers, AI developers and retail investors." The letter asked the SEC to provide written responses to a list of questions by July 31, covering what guardrails or analysis the agency has applied to agents, when an AI agent would need to register, and the extent of its consultations with platforms over AI. It also asked whether the SEC has the authority it needs to address the risks of AI agents, or if it requires congressional action to do so. Representatives Stephen Lynch, Jim Himes, Sean Casten, Rashida Tlaib, Brittany Pettersen and Sylvia Garcia also signed the letter.