News & Insights

AI Considerations

The flash report below has been updated since it was originally posted on 4/23/2024

What happened? 

On April 15th, 2024, the SEC’s enforcement director, Gurbir Grewal, spoke at the Program on Corporate Compliance and Enforcement Spring Conference 2024, where he discussed the use of artificial intelligence (“AI”), cybersecurity, and disclosure obligations, among other topics.  

In his remarks, Grewal noted that “a public company may find it necessary to disclose information regarding security risks from AI. In fact, by some measures, most public company disclosures about AI relate to security and competitive risks from AI.” 

While the speech was primarily tailored to public companies, advisers should take note given the SEC’s recent focus on AI, as evidenced by the proposed Predictive Data Analytics Rule. AI is a rapidly changing form of technology, and while technology presents opportunities, it also presents significant risk and security implications, particularly for those handling PII.   

Grewal continued, with regards to public companies, “Individual liability for disclosure failures related to AI as a security threat may therefore be of particular interest to you.” 

What does this mean for me and my firm? 

Advisers should keep AI in mind when assessing overall firm risk and drafting disclosures. Firms should monitor for regulatory developments, such as the proposed Predictive Analytics Rule 

We urge investment advisers to consider the following:  

  • Advisers should operate in good faith and take reasonable steps to mitigate risk and comply with regulatory requirements and guidance. 
  • AI presents security threats, especially for firms that incorporate it into their business.  
  • Advisers have a fiduciary responsibility to act in their clients’ best interest and take steps to either disclose, mitigate, or avoid risk. Because AI presents a risk, firms should take action to mitigate it.  

At a minimum, Fairview recommends firms conduct training to educate employees on AI related risk and permitted and prohibited AI usage. 

Still have questions? Let us know and one of our regulatory experts will be in touch.