Brian Daly Quoted by PE Law Report on SEC Proposed Rules re: AI Conflicts of Interest

For its article “SEC’s Proposed Conflicts Rules for AI Erode Primacy of Disclosure and Investor Consent Principles,” Private Equity Law Report quoted Akin investment management & private equity partner Brian Daly. The article looks at rules proposed in late July by the Securities and Exchange Commission (SEC) to “eliminate or neutralize the effect of specific conflicts of interest associated with a sponsor’s interactions with investors through technologies that optimize for, predict, guide, forecast or direct investment-related behaviors or outcomes,” according to the publication.

The article explains the rationale behind the proposed rules, the scope of their application, key definitions and core requirements. Brian is quoted throughout.

A few highlights:

• On the SEC’s statement in the rules that covered technologies would render disclosure ineffective: The fiduciary interpretation proposed by the SEC in 2019 also contemplated that disclosure would not cure all conflicts of interest—Brian is noted as saying—However, the private funds industry strongly disagreed, asserting that highly sophisticated investors had sufficient internal processes and a range of advisers to assist them in deciding whether to make investments.
• On the SEC and Chair Gensler’s focus: Many people feel that the SEC should do more to protect retail investors from themselves or unscrupulous broker-dealers looking to earn commissions by creating frenzies—Brian said—However, PE and other private funds will rightly point out that they are in a different position and should be outside the rule’s cop.
• On practical compliance challenges: The recordkeeping requirements present a daunting prospect because they contemplate a record of all covered technologies, with no limitations as to materiality or other proportionality considerations—Brian is noted as saying—That could be a real “gotcha” for compliance officers because ensuring perfect compliance would be difficult.

To read the full article and all of Brian’s observations, click here.