SEC Division Director Proposes AI-Powered Disclosure, Invites Industry Collaboration

SEC Director of the Division of Investment Management Brian Daly encouraged the investment management industry to collaborate on ways AI can modernize investor disclosures and improve regulatory processes.

In an address before the Investment Company Institute, Mr. Daly said that since 2005 there has been slow regulatory development on basic tech issues like e-delivery, electronic records, and digital communications—calling it "a lost generation of limited progress." He highlighted that adoption of AI across the industry remains uneven, due, in part, to liability concerns stemming from past SEC enforcement. While acknowledging the challenges—liability concerns, questions about whether AI models constitute marketing or require adviser registration, and supervision issues—Mr. Daly framed these as "solvable." He called for industry engagement rather than waiting for slow-moving regulations.

On disclosure innovation, Mr. Daly suggested that rather than defaulting to emailing PDFs (which he calls "1990s technology"), the industry could use large language models to create AI agents that interact with investors. He said that these agents would be trained on fund documents and answer investor questions in plain English—making disclosures more accessible than traditional 200-page prospectuses. He acknowledged that while the use of AI agents raises valid regulatory questions regarding marketing and supervision, these issues are solvable through collaboration.

Emphasizing the agency's role as an "Innovation Commission," Mr. Daly invited market participants to engage directly with the Division to explore pilot programs or request guidance for novel technologies.