Algorithms in Finance: Balancing First Amendment Protections and Regulation

Fordham Journal of Corporate & Financial Law Volume 30 Issue 1 Article 7 2025 Algorithms in Finance: Balancing First Amendment Protections and Regulation Yusraa Tadj Fordham University School of Law Follow this and additional works at: https://ir.lawnet.fordham.edu/jcfl Part of the Administrative Law Commons, Agency Commons, Banking and Finance Law Commons, Business Administration, Management, and Operations Commons, Business Intelligence Commons, Corporate Finance Commons, Other Law Commons, and the Securities Law Commons Recommended Citation 30 Fordham J. Corp. & Fin. L. 237 (2025). This Note is brought to you for free and open access by FLASH: The Fordham Law Archive of Scholarship and History. It has been accepted for inclusion in Fordham Journal of Corporate & Financial Law by an authorized editor of FLASH: The Fordham Law Archive of Scholarship and History. For more information, please contact . ALGORITHMS IN FINANCE: BALANCING FIRST AMENDMENT PROTECTIONS AND REGULATION Yusraa Tadj * ABSTRACT As algorithms become a function of decision-making in the financial sector, policymakers, the judiciary, and academics grapple with regulatory questions. With the increased reliance on algorithms in finance, the Securities and Exchange Commission (SEC) proposed a rule to mitigate potential conflicts of interest that can arise out of financial firms using algorithms. Algorithm users, including financial firms, are finding novel ways to protect algorithm use, such as by offering them First Amendment protections. This Note considers to what extent algorithms can be considered protected speech amidst the complexity of algorithms and relationship within the financial sector. The Note argues that algorithms, particularly those with traceable human involvement, should be protected under the First Amendment. However, it also acknowledges the challenges in regulating algorithmic speech, especially with “black box” systems where human decision-making is less discernible. Through examining the SEC’s proposed rule, relevant First Amendment doctrine, and the varying complexity of financial algorithms, the note highlights the need for a nuanced approach to regulation that balances investor protection with the constitutional rights of financial firms. The conclusion underscores the importance of adapting First Amendment protections to reflect the evolving role of technology in finance, advocating for a case-by-case approach in scrutinizing algorithms under regulatory frameworks. J.D. Candidate, Fordham University School of Law, 2025; M.U.D., The University of British Columbia, 2016; B.C.D., Honours, Dalhousie University, 2015. Thank you to the editors and staff of the Fordham Journal of Corporate & Financial Law for their thorough and thoughtful edits. Thank you to my advisor, Professor Sean Griffith, for his idea for the topic and his valuable expertise and guidance. * 237 238 FORDHAM JOURNAL OF CORPORATE & FINANCIAL LAW [Vol. XXX INTRODUCTION...................................................................................... 238 A. The SEC’s Proposed Rule to Protect Investors from Potential Technological Harm ............................................... 240 B. Unravelling Algorithms and their Role in the Financial Sector ..................................................................................... 242 II. FIRST AMENDMENT DOCTRINE ...................................................... 246 A. Categories of Inclusion and Exclusion................................... 247 B. Personhood ............................................................................. 250 C. Existing Analysis on First Amendment as to Algorithms...... 251 1. Perspectives on Algorithms ............................................. 251 2. Treatments of Algorithms under First Amendment......... 254 III. STRATEGIES FOR DECODING COMPLEXITY AS TO ALGORITHM REGULATION ................................................................................. 257 a. Application of the First Amendment to Algorithms .............. 257 CONCLUSION ......................................................................................... 262 INTRODUCTION In a world where algorithms increasingly dictate financial decisions, the question arises: should these complex algorithms be granted the same First Amendment protections as human speech, or do they represent a new domain that needs nuanced regulation? There are ongoing debates about the financial sector’s growing reliance on artificial intelligence (AI). Adopting this technology has advantages, which include allowing financial firms to democratize investing through efficiency improvements1 and discover new “troves of big data.” 2 The benefits, however, come with tradeoffs: the potential of poor data quality, 3 cybersecurity threats, 4 exacerbating existing systemic risks, 5 1. See Adam Hayes, Operational Efficiency: Definition, Examples, Vs. Productivity, INVESTOPEDIA (May 04, 2022), https://www.investopedia.com/terms/ o/operationalefficiency.asp. 2. Tom C.W. Lin, Artificial Intelligence, Finance, and the Law, 88 FORDHAM L. REV. 531, 536 (2019). 3. See Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers, 88 Fed. Reg. 53960, 53968 (proposed July 26, 2023) (to be codified at 17 C.F.R pt. 240 and pt. 275) (hereinafter “Data Analytics Proposal”). 4. See generally Lin, supra note 2; see also Alec Lucas, Why ‘Free’ Robo(Apr. 27, 2022), Advisors Aren’t Really Free, MORNINGSTAR 2025] ALGORITHMS IN FINANCE 239 and using “black box” systems that eliminate human decision-making and accountability.6 As AI technology continues to permeate the financial sector, there are questions about regulating communication between financial firms and investors, including the constitutional protection of algorithmic speech under the First Amendment. This note argues that algorithms and algorithmic outputs are protected under the First Amendment in light of the Securities and Exchange Commission’s (SEC) proposed rule. The SEC’s rule aims to mitigate conflicts of interest and harmful effects that may arise from using AI technologies in the financial sector. In answering this overarching question, Part I.A7 examines the SEC’s proposed rule that attempts to eliminate or neutralize the effects of AI technologies. 8 Part I.B explores the varied algorithms relevant to the financial sector. 9 Part II discusses the relevant aspects of the First Amendment doctrine that courts may have to rely on in making their decision on algorithms. 10 Relatedly, Part II.A11 explores categories of inclusion and exclusion under the First Amendment coverage and Part II.B 12 discusses personhood as a requirement for First Amendment protections. Part II.C summarizes current views on algorithms under the First Amendment. 13 Part III.A offers a perspective amidst the differing views on how algorithms may be treated that incorporates reconciles th (...truncated)