It is an honor to join you today for the CFTC’s World Investor Week program hosted by the Office of Customer Education and Outreach and the Office of Technology Innovation. 

This year – 2023 marks the seventh year of the World Investor Week initiative sponsored by the International Organization of Securities Commissions (IOSCO). I am honored to join my colleagues at the CFTC and our fellow regulators globally as we focus this year on two critical issues – the role of social media and artificial intelligence in our markets.

This program casts a spotlight on the use of concerning “rug pulls” or “pig butchering” in digital asset markets. This program also explores how social media enables fraudsters to identify individual investors in, for example, romance schemes.  Further, the program looks at the expanding diversity of, and appropriate regulatory approach for, the digital assets ecosystem – including cryptocurrencies, stablecoins, algorithmic stablecoins, nonfungible tokens (NFTs), and many other coins and tokens the digital asset universe.   

Alongside these innovative products, our focus must of course include reducing and, if possible, preventing garden variety as well as sophisticated fraud and deeply concerning Ponzi schemes. 

Over the last three years, our markets have witnessed the twin peaks of the onset of the COVID-19 pandemic and geopolitical events in Europe, namely Russia’s invasion of Ukraine. During these market disrupting events, social media has played a novel role in our markets, particularly in the decisions of individuals considering investing in digital asset markets. 

Alongside the rise in the use of social media, we note that the demographic of investors has shifted.  Markets have witnessed a rising number of younger investors in parallel with the expansion of crypto markets. This phenomenon coupled with the increasing prevalence of social media and expanding uses of artificial intelligence in our markets is the focus of this year’s world investor week programming. 

Social Media 

It is difficult to overstate the growing significance of social media in retail investor markets.  A few taps on an app and a coin or token appears in your digital wallet. The development of a number of emerging technologies fueled by open source access to build on protocols and platforms may reduce the frictions and challenges of investing. There are no storefronts. No certified investment professionals. Just chatrooms and offers of immediate gratification in executing a transaction as well as promises of unprecedented returns.  

In 2021, IOSCO members ranked the “increasing influence of social media on retail trading behavior” as one of the most important trends affecting retail trading.[1] While increased access and inclusion in markets may create many benefits, it is important that the guardrails regulators have long relied upon as foundational to customer protection continue to serve as a check against fraud. It is important that social media aid in the distribution of verified information that will help investors to make sound investment decisions rather than information that may mislead investors or amplify the potential for fraud. In 2022, the Federal Trade Commission reported $1.2 billion in losses related to fraud originating on social media.[2] 

AI in Investment Decisions

Earlier this year, I noted the importance of focusing on the increasing integration of AI in financial markets. During a recent Technology Advisory Committee meeting, I explained that

Last year, President Biden announced a Blueprint for an AI (Artificial Intelligence) Bill of Rights.[3] Last month, during a speech in San Francisco, President Biden delivered remarks on the risks and opportunities posed by artificial intelligence.[4] The President echoed reflections and concerns that will shape a values-driven discourse on the integration of AI.  Congress is also casting a spotlight on AI.  Earlier this year, Senate Majority Leader Chuck Schumer from my home state of many years—New York—launched a first-of-its-kind high-level framework and began to outline a new regulatory regime for AI, engaging leading experts to help inform the proposal.[5] For those of us who have spent years thinking, researching, and writing about the potential and concerns surrounding the integration of AI, this is a welcomed approach.

In 2008, I began to research and publish literature examining the integration of AI in financial markets.  Not long after, I began to support federal agencies, including our Commission and the Securities and Exchange Commission (SEC), in the development of regulations addressing concerns emerging from the adoption of technologies that accelerate trading.

Three quick observations:

1. AI technologies tout tremendous promise – a promise to reduce frictions and enhance efficiency, permitting trading at the speed of light; yet, there are many reasons to carefully interrogate these promises to ensure that we mitigate exposure to potential perils that may also follow from adopting AI;
2. We must ensure that responsible AI effectively ensures accountability; accountability requires transparency and visibility; and
3. The integration of AI by our largest and most complex financial institutions, including exchanges, clearinghouses, and those who provide services supporting execution, clearing, and settlement (of, for example, sophisticated derivatives contracts), as well as transactions offering the least complex financial services (consumer payment transfer services or residential mortgages) to the most vulnerable consumers must be subject to sufficiently rigorous evaluation (whether auditing or alternative approaches) and regulations.

Conclusion

I hope the presentations today will assist in educating all investors and provide helpful resources for investors to stay informed about potential scams and abuses on social media and in crypto markets. As we have previously noted, fraudsters offering guaranteed, or unusually high, returns—or both—should prompt scrutiny and additional diligence before transferring any funds. I encourage everyone to visit the CFTC’s investor advisory page which provides alerts and updates on prevalent frauds and enforcement actions we are seeing in our market.[6]  I want to thank Dan Rutherford for the hard work he and his team put into planning and organizing this session today.

[2]  Federal Trade Commission, FTC Issues Orders to Social Media and Video Streaming Platforms Regarding Efforts to Address Surge in Advertising for Fraudulent Products and Scam, Mar. 16, 2023, https://www.ftc.gov/news-events/news/press-releases/2023/03/ftc-issues-orders-social-media-video-streaming-platforms-regarding-efforts-address-surge-advertising.

[3]  White House Office of Science and Technology Policy, Blueprint for an AI Bill of Rights (2022), https://www.whitehouse.gov/ostp/ai-bill-of-rights.

[4]  Remarks by President Biden on Seizing the Opportunities and Managing the Risks of Artificial Intelligence (June 20, 2023), https://www.whitehouse.gov/briefing-room/speeches-remarks/2023/06/20/remarks-by-president-biden-on-seizing-the-opportunities-and-managing-the-risks-of-artificial-intelligence/.

[5]  Karoun Demirjian, Schumer Lays Out Process to Tackle A.I., Without Endorsing Specific Plans, N.Y. Times, June 21, 2023, https://www.nytimes.com/2023/06/21/us/ai-regulation-schumer-congress.html.

[6]  See CFTC Advisory and Articles, available at https://www.cftc.gov/LearnAndProtect/AdvisoriesAndArticles/index.htm.