Managed Funds Association gives the Ministry of Finance recommendations on the use of AI

The Managed Funds Association (MFA) has submitted some recommendations to the U.S. Treasury Department for consideration when setting rules for the use of artificial intelligence (AI) in financial services.

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In a letter to Treasury Department officials, the State Department made the following statement on the use of AI:

• Alternative asset managers use AI to improve existing processes and procedures;
• Fiduciary duties and other existing regulations already adequately address potential concerns arising from the use of AI tools;
• Previous attempts to regulate specific technologies confirm that regulators should remain technology neutral and prioritise regulatory activities;
• Potential use cases for AI are still being developed and could bring important benefits.

The recommendations aim to protect both markets and investors, while promoting innovation, competition and the ability of alternative asset managers to generate returns.

“The MFA welcomes the Treasury Department’s request for public feedback on how it should approach the use of AI in financial services before developing regulations. AI technology holds incredible promise as alternative asset managers use this transformative technology to benefit their investors, which include pension funds, foundations, and endowment funds,” said Bryan Corbett, MFA President and CEO. “Using existing regulatory frameworks to address specific activities of concern protects investors, markets, and managers without hampering innovation or competition. Like many technological innovations before it, AI has the potential to reduce costs and improve markets, and any concerns should be addressed with a technology-neutral approach.”

According to MFA, AI has the potential to increase efficiency and create benefits for markets, managers and investors. Currently, alternative asset managers use AI tools to improve research and analysis, risk management, portfolio optimization, fraud detection and compliance, always with human involvement.

Overall, the NFA supports regulatory approaches that use existing technology-neutral frameworks to address activities rather than a specific technology, thereby avoiding inadvertently hindering the development of new uses for technologies that could benefit investors.

The MFA also pointed out that previous attempts to regulate the technology rather than the activities were unsuccessful. For example, when the CFTC attempted to regulate a specific technology, automated trading, it encountered enormous difficulties in getting the proposed rules “just right” and eventually withdrew its initiative entirely. In the course of this process, the CFTC eventually realized that the markets it regulates and the technological tools used by its market participants are constantly changing.

In summary, the MFA stated that attempting to regulate one technology over another could inadvertently stifle innovation, reduce returns and impair the ability of smaller and emerging managers to remain flexible in a competitive market.