The regulatory battle behind NASAA IAR Ethics CE

NASAA IAR Ethics CE content examining the well‑financed lobbying effort to preempt state securities regulators from policing artificial‑intelligence‑driven investments reflects the high-quality education Advisors4Advisors delivers. This article is part of our ongoing reporting initiative designed to give CFP®, CIMA®, and CPA professionals a clear, fact‑based understanding of the federal campaign to preempt state regulation of crypto, alternative, and AI‑based investment products.

This posts builds on related articles including:
• NASAA’s Preemption Battle: Meets IAR Ethics CE Rules  
• 2025 NASAA IAR CE Reshaped Ethics Training of Professionals
• Last‑Minute 2025 NASAA IAR CE Deadline Guide 

In summary, a coalition of crypto promoters, private‑placement sponsors, alternative‑investment managers, and artificial‑intelligence firms is actively pursuing federal legislation that would curtail or eliminate state securities enforcement authority. This lobbying effort is unfolding at a moment when federal enforcement capacity has recently been constrained by Supreme Court rulings and executive actions, materially reducing the authority of the Securities and Exchange Commission and the Consumer Financial Protection Bureau. The confluence of these factors places investor protection at higher risk.

NASAA’s role in investor protection

At the center of the controversy stands the North American Securities Administrators Association (NASAA), a 106‑year‑old organization representing state and provincial securities regulators across the United States and Canada. NASAA’s mission is to protect investors from fraud, promote market integrity, support responsible capital formation, and help state attorneys general maintain confidence in financial markets.

Unlike trade associations or lobbying groups, NASAA’s membership consists of nonprofit public servants who work in attorneys general offices as state securities regulators. State securities administrators derive their power statutorily in state law and also from their close proximity to retail investors small advisory firms, and local capital‑raising activity. NASAA IAR Ethics CE courses on Advisors4Advisors draw directly on this practicality rather than abstract theory.

Why federal preemption would weaken investor protection

Debates over federal preemption often sound abstract. In practice, preempting state authority does not replace local oversight with a faster or more precise enforcement regime. It replaces a broad, distributed network of regulators with a narrower federal system that lacks the same proximity to retail investors and smaller advisory practices.

In the context of artificial intelligence and financial services, this shift would materially weaken investor protection. The Supreme Court’s recent invalidation of the SEC’s long‑standing administrative enforcement framework has already pushed more cases into federal court, increasing litigation costs, delays, and resource strain. Simultaneously, reductions in the CFPB’s enforcement capacity have further narrowed the federal safety net just as AI‑driven investment claims proliferate.

AI washing as a preemption test case

AI washing offers a concrete lens through which to evaluate what preemption would mean in practice. AI washing refers to exaggerated, misleading, or false claims about the role artificial intelligence plays in investment products or advisory services. The terminology is new; the conduct is not.

State regulators are not auditing algorithms or source code. They are evaluating representations made to investors, an activity they have performed for decades with quantitative strategies, proprietary models, and complex structured products. Claims are either accurate and complete or they are misleading. Preemption would remove state regulators from this evaluative role at precisely the moment AI‑related marketing claims are proliferating.

Historical patterns NASAA recognizes

NASAA’s opposition to broad federal preemption is informed by institutional memory. Historically, major investment fraud narratives including derivatives abuse, private placements, structured notes, and crypto surfaced first in state examinations before attracting national attention.

AI‑based investment claims are following the same trajectory. AI washing typically manifests as marketing language overstating automation, implying predictive certainty, or suggesting technology replaces human judgment without disclosure. These cases rarely begin as national scandals. They emerge incrementally through advertising reviews, examinations, and investor complaints, the core functions of state securities regulators.

President Trump’s December 2025 AI executive order

On December 11, 2025, President Trump signed an executive order titled “Ensuring a National Policy Framework for Artificial Intelligence.” The order does not directly invalidate existing state AI laws. Instead, it establishes mechanisms allowing federal agencies to challenge, discourage, or override state regulation and lays groundwork for future statutory preemption.

NASAA responded with a December 2025 letter to Congress opposing federal bans on state AI regulation. NASAA argued that preemption would undermine investor protection and impair regulators’ ability to respond to rapidly evolving risks in financial services. The organization emphasized that state authority enables faster, more adaptive enforcement aligned with local market conditions.

Why enforcement outcomes would change

Federal regulators are structurally designed to prioritize cases with national scope, systemic risk, or large dollar amounts. State regulators operate differently. Academic research and enforcement data show that states routinely pursue smaller, localized cases that materially affect investors but may never meet federal thresholds.

NASAA’s enforcement statistics confirm this division of labor. State regulators conduct thousands of investigations annually involving modest per‑investor losses but significant cumulative harm. This pattern has defined U.S. securities enforcement for decades and explains why AI‑washing cases frequently fall within state jurisdiction.

Examples of state‑level AI‑related enforcement

Recent state actions illustrate how AI washing and related misconduct are already being addressed without new AI‑specific statutes. State regulators have investigated misleading AI marketing claims tied to investment returns, pursued deceptive underwriting practices using AI models, and coordinated multi‑state actions addressing unsafe or misleading AI products.

Why ethical IARs benefit from state oversight

Ethical Investment Adviser Representatives have a direct business interest in strong state oversight. Clear disclosure rules, enforceable standards, and routine examinations distinguish professional advisors from promoters relying on exaggeration or opacity.

From a commercial standpoint, NASAA IAR Ethics CE reinforces the trust that sustains advisory practices. Clients cannot independently verify technology claims or investment processes. They rely on professional judgment operating within a credible regulatory framework. Strong oversight protects advisors who adhere to fiduciary principles.

Liability insurance, business risk, and NASAA IAR Ethics CE

For Investment Adviser Representatives, the risks associated with AI washing are not theoretical. They show up in errors and omissions insurance underwriting, premiums, exclusions, and claims handling. As AI‑related claims become more common in advisory marketing and client communications, insurers are paying closer attention to how those claims are substantiated and disclosed.

When state regulators actively police misleading AI representations, they create a clear compliance baseline. That baseline benefits ethical IARs by defining reasonable disclosure and professional conduct. In contrast, preemption that weakens state oversight increases ambiguity, which raises perceived risk in insurance markets.

In this sense, NASAA IAR Ethics CE is not only about regulatory compliance. It is about managing business risk in an environment where technology claims increasingly intersect with liability.

The bottom line for NASAA IAR Ethics CE

AI washing is not about artificial intelligence itself. It is about truth in representation. State regulatory preemption would weaken investor protection at the moment misleading claims first appear.

For IARs, strong disclosure standards and active state oversight are not obstacles. They are competitive advantages that protect trust, reinforce professionalism, and support the long‑term health of advisory businesses. Innovation does not require fewer regulators. It requires honest claims, enforceable standards, and accountability.