Major Overhaul of Resources for AI Proposal | Fred Teufel Insights
Vigilant Insights
Brief Introduction
The SEC’s rule proposal related to artificial intelligence (“AI”) and data analysis has made waves in the Registered Investment Adviser (“RIA”) industry.
As firms discover the number of resources that may be required to maintain compliance with the rule, significant concerns have been raised about the effects on smaller firms.
Vigilant Director, Fred Teufel, CPA, MBA, CGMA, provided insight into this problem in a recent article by Ignites.
Fred Teufel’s Insight
When it comes to the broad proposals made by the SEC regarding AI use for RIAs, it is likely that firms will have to make major overhauls to their systems, which Fred Teufel sees as a huge burden for firms.
There will be greater vigilance required when monitoring and documenting all of their processes, raising the costs for operations and the support they require.
Smaller firms will likely struggle, because Fred expects larger firms to have an easier time adjusting to the rules and controlling the costs involved. Smaller firms do not have these same resources. The larger organizations will use their access to technology to increase their efficiency and ensure their ongoing ability to use AI and predictive data analytics (“PDA”).
Vigilant’s Conclusion
RIA firms should prepare for increasing compliance challenges as the SEC attempts to address the perceived risks of AI on investor protection; fair, orderly, and efficient markets; and capital formation.
Given SEC’s inclusion of a broad range of technologies, some of which firms may not even associate with AI, and the expansive definition of what constitutes PDA, there are some important steps that firms should be taking now.
Indeed, with such a rapidly changing regulatory regime, it is essential that firms partner with experienced compliance professionals that can help them navigate through the complex regulatory environment and help effect the change management processes necessary to maintain ongoing compliance.
Please reach out to Vigilant for any support you may need.