Introduction

MFA recently submitted a comment letter to the U.S. Treasury Department, outlining four key recommendations for regulators as they consider rules regarding the use of artificial intelligence (AI) in financial services. This letter was a response to a Treasury request for information on the uses, opportunities, and risks associated with AI in this sector.

Key Recommendations

• Regulators should assess how alternative asset managers utilize AI to enhance existing processes.
• Existing regulations, including fiduciary duties, may already address concerns related to AI tools.
• Regulators should focus on activities rather than specific technologies to avoid hindering innovation.
• Potential AI use cases are evolving and could provide significant benefits.

Protecting Markets and Encouraging Innovation

The recommendations aim to safeguard both markets and investors while fostering innovation and competition. This is crucial for alternative asset managers to continue generating returns for their investors, including pensions, foundations, and endowments.

Regulatory Approaches

MFA supports regulatory frameworks that are technology-neutral, focusing on activities rather than specific technologies. This approach will help prevent unintentional barriers to the development of new technologies that could enhance human capabilities and benefit investors.

The Role of AI in Financial Services

AI has shown great potential in improving efficiencies and delivering benefits across markets, managers, and investors. Currently, alternative asset managers employ AI tools for various purposes, including research and analysis, risk management, portfolio optimization, fraud detection, and compliance, always ensuring human oversight.

Public Feedback and Regulatory Frameworks

“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,” stated Bryan Corbett, MFA President and CEO. He emphasized the importance of leveraging existing regulatory frameworks to protect investors and markets without stifling innovation.

Lessons from Past Regulatory Efforts

MFA’s letter highlights the challenges regulators faced in the past when attempting to regulate specific technologies. For instance, the CFTC’s efforts to regulate automated trading faced significant hurdles, leading to the withdrawal of their initiative. This experience underscores the need for regulators to remain technology-neutral and adaptable to the evolving marketplace.

Conclusion

Attempting to regulate a specific technology could inadvertently stifle innovation and limit the ability of smaller managers to compete effectively. Therefore, a balanced approach is essential.

For further details, read the comment letter here.

Source: MFA