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By global law firm Proskauer Rose LLP.

2023's excitement for generative artificial intelligence (AI) prompted the SEC to respond on multiple fronts - stump speeches, rulemaking, new exam priorities and sweeps and previewing potential enforcement actions. SEC Chair Gary Gensler raised concerns regarding potential conflicts and investor harm resulting from the proliferation of AI and warned that an AI-caused financial crisis is nearly unavoidable absent regulation. The SEC adopted a number of initiatives in 2023 to respond to these perceived risks.

In the UK, the UK's Financial Conduct Authority (the FCA) will be watching firms use of AI closely but largely sees its existing regulatory regime as being fit for purpose, with enforcement action in AI-related matters likely to be taken under Senior Managers and Certification Regime and the new Consumer Duty.

These regulatory efforts will be accelerated in 2024, and fund managers should therefore be aware that:

• The SEC has proposed rules to address the potential conflicts of interest presented by the use of AI technologies in the securities industry.

The proposed Predictive Analytics Rules would require broker-dealers and registered investment advisers to eliminate or neutralize the effect of certain conflicts of interest associated with their use of AI and other technologies - "Covered Technologies" - in any "Investor Interaction," both of which terms are very broadly defined......................

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