AI washing, SEC enforcement and exam priorities

What AI washing means

"AI washing" is the SEC's shorthand for claiming to use artificial intelligence in ways you don't, or overstating what your AI does. The SEC's then-chair put it plainly when announcing the first adviser cases: "Investment advisers should not mislead the public by saying they are using an AI model when they are not. Such AI washing hurts investors" (press release 2024-36).

It isn't a new kind of violation. It's the old rule against untrue or misleading statements applied to a new buzzword. That's useful, because it means the defenses are familiar: say only what's true, and keep the evidence.

The March 2024 cases: Delphia and Global Predictions

On March 18, 2024 the SEC announced settled charges against two investment advisers, Delphia (USA) Inc. and Global Predictions Inc., "for making false and misleading statements about their purported use of artificial intelligence." The firms agreed to pay $400,000 in total civil penalties: $225,000 for Delphia and $175,000 for Global Predictions. Both consented to orders without admitting or denying the findings, and both were censured and ordered to cease and desist.

According to the SEC, from 2019 to 2023 Delphia made false and misleading statements in its SEC filings, a press release and on its website about using AI and machine learning that incorporated client data in its investment process, when it didn't have those capabilities. Delphia was also charged with violating the Marketing Rule.

The SEC said Global Predictions made false and misleading claims in 2023 on its website and social media, including falsely claiming to be the "first regulated AI financial advisor" and misrepresenting that its platform provided "[e]xpert AI-driven forecasts." It also violated the Marketing Rule by falsely claiming to offer tax-loss harvesting, and included an impermissible liability hedge clause in its advisory contract, among other violations.

What the fiscal 2026 exam priorities say about AI

The SEC's Division of Examinations published its fiscal year 2026 examination priorities on November 17, 2025 (press release 2025-132). The document is a staff statement with "no legal force or effect," but it tells you what examiners plan to look at. AI shows up in three places.

Emerging financial technology. The Division says it remains focused on registrants' use of automated investment tools, AI technologies and trading algorithms or platforms. It says reviews will generally assess whether representations are fair and accurate, whether operations and controls match disclosures, whether algorithms lead to advice consistent with investors' profiles or stated strategies, and whether controls confirm automated advice meets obligations to investors, including retail and older investors. On AI specifically, the Division says it "will review for accuracy registrant representations regarding their AI capabilities" and will assess whether firms have adequate policies and procedures to monitor or supervise their use of AI, including for fraud prevention and detection, back-office operations, anti-money laundering and trading functions, as applicable.

Cybersecurity. The Division says it will focus on training and security controls firms use to identify and mitigate new risks associated with AI and polymorphic malware attacks.

Regulation S-P. Examinations will look at policies and procedures, internal controls, oversight of third-party vendors and governance, and after the compliance dates, whether firms have implemented the 2024 amendments. See Regulation S-P and AI vendors.

The withdrawn predictive data analytics proposal

On July 26, 2023 the SEC proposed rules on "Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers" (Release 34-97990). The proposal would have covered some AI use by advisers and broker-dealers.

On June 12, 2025 the Commission formally withdrew it, along with other proposals issued between March 2022 and November 2023, effective June 17, 2025 (withdrawal notice). The SEC said it "does not intend to issue final rules" on those proposals, and that if it pursues future action in those areas it will issue a new proposed rule.

So there's no pending SEC rule specific to AI conflicts. That doesn't leave a gap: fiduciary duty, Regulation Best Interest for broker-dealers, the Marketing Rule, the compliance rule and the books and records rules all still apply to how firms use AI.

Related enforcement worth knowing

Off-channel communications. Not AI cases, but the closest parallel for AI chat and notetaker records. In November 2024 remarks, the SEC's then-acting enforcement director said that in fiscal 2024 the Commission brought recordkeeping cases with over $600 million in civil penalties against more than 70 firms, and that since December 2021 the initiative had produced charges against more than 100 firms and over $2 billion in penalties (Wadhwa remarks). If an AI tool creates business communications you can't capture, the same logic applies. Our recordkeeping guide covers it.

FTC. Outside securities law, the FTC announced "Operation AI Comply" on September 25, 2024, with five actions against companies using AI hype or selling AI tools used deceptively (FTC press release). The FTC chair said there's "no AI exemption from the laws on the books." None of those cases involved advisers, but the message is the same.

What examiners may ask for

The list below is our suggestion, built from the areas the fiscal 2026 priorities name. It isn't an SEC document request list. Having these ready makes an AI-related exam question quick to answer:

• An inventory of AI tools and AI features in use, with what each one does and who uses it (supports the "policies and procedures to monitor and/or supervise" AI point).
• Your written AI policy, or the sections of your compliance manual that cover AI (Rule 206(4)-7 for advisers).
• Every public statement about your AI use (website, brochure, pitch decks, social posts) and the support for each (the "review for accuracy" point).
• Evidence that what you disclose matches how the tools actually operate.
• Vendor due diligence files and contracts for AI vendors that handle customer information (the Regulation S-P vendor oversight point).
• Your incident response program and any AI-related incidents logged (Regulation S-P).
• Training records showing staff were trained on AI risks and security controls (the cybersecurity point).
• If AI is used in advice or recommendations: how you test that output is consistent with clients' profiles and your stated strategies.
• Records of AI-generated communications that your recordkeeping analysis says you must keep.

How to avoid an AI washing problem

Start with an honest inventory. Most advisory firms use AI for notes, drafts and research, not for picking investments. That's fine to say, and it's easy to substantiate. Trouble starts when marketing copy drifts from "we use AI to save time on paperwork" to "our AI-driven process" without anyone checking what the process is.

Then make AI claims part of your normal advertising review. Ask for the support file before anything goes live, check that the brochure and the website say the same thing, and re-check claims when you change or drop a tool. Our disclosure page has wording examples, and the Marketing Rule guide covers AI-written content more broadly.