The Managed Funds Association (MFA) offered some recommendations for the U.S. Treasury Department to consider as they set rules on the use of artificial intelligence (AI) in financial services.
In a letter to Treasury officials, MFA made the following points on AI use:
• Alternative asset managers use AI to enhance existing processes and procedures;
• Fiduciary duty and other existing regulations already sufficiently address potential concerns posed by the use of AI tools;
• Past attempts to regulate specific technologies confirm that regulators should remain technology neutral and prioritize regulating activities;
• Potential use cases for AI are still developing and could unlock important benefits.
The recommendations aim to protect both markets and investors while encouraging innovation, competition, and the ability of alternative asset managers to generate returns.
“MFA appreciates Treasury soliciting public feedback about how it should address the use of AI in financial services before drafting any regulation. AI technology shows incredible promise as alternative asset managers deploy this transformative technology to the benefit of their investors, which include pensions, foundations, and endowments,” Bryan Corbett, MFA president and CEO, said. “Leveraging existing regulatory frameworks to address specific activities of concern will protect investors, markets, and managers without stifling innovation or competition. Like many technological innovations before, AI has the potential to reduce costs and improve markets, and any concerns should be addressed with a technology- neutral approach.”
MFA said AI has the potential to enhance efficiencies and produce benefits for markets, managers, and investors. Currently, alternative asset managers use AI tools to enhance research and analysis, risk management, portfolio optimization, fraud detection, and compliance, always with human involvement.
Overall, NFA said it supports regulatory approaches that utilize the existing, technology-neutral frameworks to address activities rather than a specific technology. This will avoid unintentionally hindering the development of new uses for technology that could benefit investors.
MFA also point6ed out that past attempts to regulate technology rather than activities were unsuccessful. For example, when the CFTC attempted to regulate a specific technology, automated trading, it encountered tremendous challenges drafting proposed rules “just right” and ended up withdrawing its initiative in its entirety. Through this process, the CFTC ultimately realized that the markets it regulates, and the technological tools used by its market participants are constantly changing.
In summary, MFA said that attempting to regulate any one specific technology over another could unintentionally stifle innovation, reduce returns, and hinder the ability of smaller and emerging managers to remain nimble in a competitive market.