MFA to HFSC Dems: Existing Securities Laws Adequately Govern Advisers' AI Use
Commentary by Steven Lofchie
The Managed Funds Association ("MFA") argued that existing securities laws already provide a robust framework for overseeing investment advisers' AI use.
In a letter responding to House Financial Services Committee Democrats' request for information on AI risks and modernization, the MFA said the Investment Advisers Act of 1940 and existing SEC rules hold advisers accountable for their development, deployment, and oversight of AI, just as they do for other technologies. The association asserted that advisers must meet fiduciary, compliance, disclosure, recordkeeping, best-execution, trading-control, and vendor-oversight obligations regardless of whether they use traditional software, quantitative models, or AI-enabled tools.
The MFA argued that these principles-based requirements allow advisers to tailor governance and risk controls to different AI applications and cautioned that prescriptive rules could quickly become outdated. The association claimed that creating a separate regulatory regime for AI would depart from how securities laws have historically accommodated technological change.
The letter also urged policymakers to account for differences among financial institutions and AI use cases. The MFA asserted that alternative asset funds do not present the risks associated with systemically important financial institutions and that AI use does not change that analysis, citing matched asset and liability structures, comparatively less leverage than other financial institutions, and smaller size and complexity. The association added that its members primarily manage money for sophisticated institutional investors such as pension plans, endowments, and foundations, and are not using AI to decide whether to offer products to retail customers or how to price them.
Commentary
In many respects, the MFA letter is consistent with the views expressed by the ABA and CBA to the House Financial Services Committee Democrats. The three letters converge on the same threshold proposition: that AI does not warrant its own regulatory regime because existing sectoral law already assigns accountability. The letters diverge, however, on the remedy: the MFA wants restraint from Congress, while the banking associations want Congress to act, principally to displace state law. (See ABA, CBA Urge HFSC Democrats to Federalize AI Regulation.)