Alston & Bird Consumer Finance Blog

Artificial Intelligence (AI)

Trump Administration Rescinds Biden Executive Order on Artificial Intelligence

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What Happened?

Last week, President Trump signed an Executive Order that rescinded the Biden Administration’s October 2023 Executive Order on the Safe, Secure, and Trustworthy Development and Use of Artificial Intelligence.

Titled “Removing Barriers to American Leadership in Artificial Intelligence,” the new Executive Order “revokes certain existing AI policies and directives that act as barriers to American AI innovation, [and will] clear a path for the United States to act decisively to retain global leadership in artificial intelligence.” The Trump Administration’s Executive Order directs executive departments and agencies to develop and submit to the President an action plan designed to meet that objective.

Why does it Matter?

AI is expected to be a focus for the new Administration, and policy likely will focus on AI development and innovation as a matter of economic competitiveness and national security. In December, (then President-elect) Trump named David Sacks, a prominent Silicon Valley venture capitalist, as the White House “AI and Crypto Czar.” When announcing this appointment, President Trump characterized AI as “critical to the future of American competitiveness…David will focus on making American the clear global leader…” We expect the Administration to focus on national security issues that include export control issues where the technology could be used in military applications by non-US governments.

What’s Next?

In contrast to the deregulatory approach at the federal level, a number of states already have passed legislation relating to the use of AI, particularly in the consumer space, including laws relating to data use, consent, and disclosures. Additionally, state Attorneys General, particularly in “blue states,” have expressed concern about the risk of “high-risk” AI that can negatively impact consumers’ access to financial goods and services and employment opportunities. With growing use of AI, we expect more activity at the state level.

Shareholders Sharpen Focus on AI-Related Securities Disclosures

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What Happened?

As Alston & Bird’s Securities Litigation Group reported, the number of securities class actions based on AI-related allegations is rising.  With six new filings in the first half of 2024 and at least five more identified by the authors since, a new trend of AI lawsuits has emerged. This trajectory is likely to continue alongside increased AI-related research and development spending in the coming years.

Why Is It Important?

A recent proposed rule and several enforcement actions indicate that the Securities and Exchange Commission (“SEC”) has a growing appetite for regulating AI-specific disclosures, and shareholders’ interest in claims. In this environment, it is imperative that companies remain cognizant of their public statements on AI.

Last year, the SEC proposed a rule that would govern AI use by broker dealers and investment advisers. Although the rule is not yet final, the agency has pursued several AI-related enforcement actions with its authority to regulate false or misleading public statements.

Thus far, the SEC’s enforcement actions have been limited to companies whose public statements on AI usage were at issue.  These companies allegedly claimed to use a specific AI model to elevate their customer offerings but could not provide any evidence of their AI implementation when questioned by the SEC.

Those previous actions do not necessarily mean that a company’s ability to prove it implemented AI technology in some form will be enough to avoid scrutiny or liability. Investor plaintiffs targeting companies’ AI disclosures represent a new frontier of potential risk for companies and their directors and officers.

What To Do Now?

Companies should consider whether the board’s audit or risk committees should be tasked with understanding the company’s AI use and considering associated disclosures in addition to any privacy and confidentiality concerns that arise. Companies can identify their AI experts to properly vet any technical proposed disclosures on AI to confirm the disclosures are accurate. The key is to make sure AI disclosures and company claims about AI prospects have a reasonable basis that’s adequately disclosed.

Companies should also aim to create and maintain appropriate risk disclosures. When disclosing material risks related to AI, risk factors become more meaningful when they are tailored to the company and the industry, not merely boilerplate.