U.S. Securities and Exchange Commission investment management director urges industry engagement on AI use and LLM-based fund disclosures

In remarks delivered in his official capacity at the Investment Company Institute Winter Board Meeting, Brian Daly, Director of the U.S. Securities and Exchange Commission’s Division of Investment Management, outlined how the division is thinking about artificial intelligence in investment management and encouraged advisers and investment companies to engage with staff on how existing rules affect AI deployment. Daly said AI adoption across the industry remains uneven and often tentative, with liability concerns cited as the main impediment, and argued that AI’s goal of removing humans from real-time decision loops raises different oversight challenges than earlier quantitative models. He also pointed to areas where the SEC’s technology-related framework remains behind market practice, including the lack of a comprehensive electronic delivery rule, ongoing uncertainty about which electronic communications fall within the books and records rule and recordkeeping requirements still shaped by paper-era processes. On disclosure delivery, he noted that many requests focus on making electronic delivery the default, typically via emailed PDFs, but suggested a broader rethinking in which a fund- or adviser-provided large language model agent trained on the full set of fund documents could answer investor questions in plain English, while acknowledging open questions such as whether such tools would be treated as marketing, require investment adviser registration, and how they would be supervised. He invited market participants to bring ideas and constraints to the division, including exploring pilot programs and seeking no-action relief or staff guidance.