The 2024 Asset & Wealth Management Summit, hosted by Nicsa, presented two days of dynamic content featuring key executives sharing insights on the most pressing issues in our industry today. In the session titled "Regulatory Shifts: What's Next for AI and Alts," industry experts provided a deep dive into the evolving regulatory landscape impacting artificial intelligence (AI) and alternative assets.
The session was moderated by Joanne Kane, Chief Compliance Officer, Global Investor and Distribution Services, US, SS&C, and illuminated the opportunities and challenges posed by rapid technological advancements and the regulatory frameworks attempting to keep pace.
Speakers included:
Dan Hays, Principal, Consulting Solutions, PwC
Kelly Chapman, Head of Legal and CCO, Wave Digital Assets
Key takeaways from the informative session follow.
The Global Regulatory Landscape for AI
Defining AI and Its Implications
AI, particularly generative AI, has permeated various aspects of our lives and industries. The panel underscored the importance of understanding AI's role, emphasizing that while it offers significant benefits—such as increased efficiency and innovation—it also presents risks, including misuse by malicious actors.
Regulatory Responses and Challenges
The European Union (EU) has taken a proactive stance with the introduction of the AI Act, marking a significant regulatory milestone. This act underscores the EU's leadership in technology regulation, a position bolstered by its methodical approach over the past five years. However, the session highlighted the complexities of regulating AI, especially the opaque and unpredictable nature of large language models like ChatGPT. This unpredictability challenges traditional regulatory frameworks, compelling regulators to rely on fundamental principles such as transparency, fiduciary duty, and consumer protection.
U.S. vs. EU Regulatory Approaches
The U.S. lags behind the EU due to political gridlock and a divided government. This delay has real implications, as some companies opt to align their operations with EU standards, anticipating that U.S. regulations might eventually mirror those of the EU. Moreover, the session touched on the role of U.S. state governments, like California and New York, which have shown initiative in filling regulatory gaps at the federal level.
AI Governance and Best Practices
Establishing an AI Governance Program
With AI's integration into business operations, companies must implement robust governance frameworks. These frameworks should include clear policies on AI usage, data protection, copyright concerns, and internal monitoring mechanisms. Firms were advised to adopt a "trust but verify" approach, ensuring that third-party AI tools align with company policies and do not introduce unintended risks.
Data Protection and Compliance
Data protection emerged as a critical concern, especially with the potential for proprietary or sensitive customer data to be exposed through AI models. Companies need to carefully manage how data is used, ensuring that it does not inadvertently propagate risks. The session recommended leveraging third-party expertise where in-house capabilities may fall short, emphasizing the need for rigorous testing and compliance protocols.
Regulatory Developments in Alternative Assets
Tokenization and Digital Assets
Tokenization represents a transformative opportunity, offering enhanced liquidity, reduced transaction costs, and greater transparency through blockchain technology. However, the regulatory landscape for digital assets remains murky, particularly in the U.S. The session noted ongoing debates about what constitutes a security and the implications for private fund managers.
Global Perspectives and Future Trends
Panelists discussed the potential for regulatory divergence between the U.S. and other regions like the EU and India. Companies must remain agile, anticipating regulatory shifts and aligning their strategies with global best practices.
Conclusion: The session "Regulatory Shifts: What's Next for AI and Alts" highlighted the dynamic interplay between innovation and regulation. For asset and wealth management professionals, staying informed and proactive in adapting to these shifts is crucial. As AI and digital assets continue to evolve, the industry must navigate a complex regulatory environment, balancing innovation with compliance and ethical considerations.
Nicsa remains at the forefront of fostering innovation and collaboration among professionals in the industry. We invite you to join us at our next event, where you'll have the opportunity to engage with industry leaders, explore cutting-edge technologies, and gain valuable knowledge to drive your business forward. Don’t miss the chance to be part of our dynamic community shaping the future of asset and wealth management: SLF2025
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