AI Governance in the Financial Industry

Legal regimes in the United States generally conceptualize obligations as attaching along one of two pathways: through the entity or the individual. Although these dual conceptualizations made sense in an ordinary pre-modem world, they no longer capture the financial system land­ scape, now that artificial intelligence has entered the scene. Neither person nor entity, artificial intelligence is an activity or a capacity, something that mediates relations between individuals and entities. And whether we like it or not, artificial intelligence has already reshaped financial markets. From Robinhood, to the Flash Crash, to Twitter\u27s Hash Crash, to the Knight Capital incident, each of these episodes foreshadows the potential for puzzling conundrums and serious disruptions. Little space exists in current legal and regulatory regimes to properly manage the actions of artificial intelligence in the financial space. Artificial intelligence does not have intent and therefore cannot form the scienter required in many securities law contexts. It also defies the approach commonly used in financial regulation of focusing on size or sophistication. Moreover, the activity of artificial intelligence is too diffuse, distributed, and ephemeral to effectively gov­ ern by aiming regulatory firepower at the artificial intelligence itself or even at the entities and individuals currently targeted in securities law. Even when the law deviates from the classic focus on entities and individuals, as it meanders through areas that implicate artificial intelli­ gence, we lack a unifying theory for what we are doing and why. To begin filling this void, we propose conceptualizing artificial intelligence as a type of skill or capacity-a superpower, if you will. Just as the power of flight opens new avenues for superhe­ roes, so, too, does the power of artificial intelligence open new avenues for mere mortals. With the capacity of flight as its animating imagery, the article proposes what we would call touch­ point regulation. Specifically, we set out three forms of scaffolding-touchpoints, types of evil, and types of players-that provide the essential structure for any body of law society will need for governing artificial intelligence in the financial industry