Senate working group outlines priorities on AI regulation

Author:

The Carta Policy Team

Published date:

May 17, 2024

Topline

• SEC, FinCEN propose new AML requirements for investment advisers
• Carta CEO visits DC to meet with policymakers and stakeholders
• Bipartisan Senate working group releases AI policy guidance
• Innovation Coalition engages on tax policy priorities
• Supreme Court upholds funding for Consumer Financial Protection Bureau
• HFSC advances SEC reform package

SEC, FinCEN propose new AML requirements for investment advisers

The SEC and Financial Crimes Enforcement Network (FinCEN) proposed a joint rule that would impose new anti-money laundering standards on venture capital and private equity fund advisers. These efforts are part of a broader effort by the Treasury Department to crack down on illicit finance, which includes closing perceived gaps in the anti-money laundering and countering the financing of terrorism (AML/CFT) program.

• The proposed rule would require registered investment advisers (RIAs) and exempt reporting advisers (ERAs) to establish, document, and maintain written customer identification programs (CIPs). This would require advisers to implement reasonable procedures to identify and verify the identity of each customer and maintain records of the information used to verify.
• Notably for private funds, the proposal suggests the rule would only apply to the private fund itself as the direct customer of the fund manager, as opposed to the fund investors.
• The CIP proposal complements a recent FinCEN proposal that would subject private fund advisers to the AML/CFT requirements under the Bank Secrecy Act.

Why it matters: Many private fund managers have some AML/KYC protocols in place, but the application of a formal regulatory regime with prescriptive requirements and recordkeeping obligations will impose significant compliance obligations, particularly for smaller private fund managers who lack the scale and resources of their larger counterparts.

In other SEC rulemaking news:

• New consumer data protection requirements: The SEC adopted rules that would require financial firms, including registered investment advisers (RIAs), broker-dealers, and transfer agents, to develop incident response programs and customer notification requirements for unauthorized access to or use of customer information.

• Additional feedback needed: Chair Gary Gensler suggested that the agency’s controversial proposal regarding predictive data analytics and the custody proposal could be reopened for public comment and potentially modified.

• Increasing scrutiny for private credit: Gensler remains focused on the private fund industry, suggesting the growth and leverage of private funds could raise financial stability concerns.

Carta CEO visits DC to meet with policymakers and stakeholders

This week, Carta CEO Henry Ward came to DC to meet with lawmakers and regulators to discuss the future of the private markets. The Carta team remains engaged with policymakers to shape rulemakings, improve processes, and support our customers, founders, and fund managers by helping them navigate the regulatory landscape.

Bipartisan Senate working group releases AI policy guidance

The Bipartisan Senate AI Working Group released a roadmap for artificial intelligence policy. The working group was formed last year to help the Senate better understand the AI policy landscape.

Policy priorities highlighted in the roadmap include:

• Increasing funding for AI innovation to propel U.S. leadership in AI and maintain our global competitiveness.
• Ensuring enforcement of existing laws for AI, including ways to address any gaps or unintended harmful bias.
• Determining the impact AI will have on our workforce, including potential job displacement.
• Addressing challenges posed by deepfakes to fair elections and nonconsensual images.

What’s next: Schumer hinted legislation may move as soon as this year. He noted that the Senate will advance individual provisions as they’re ready.

Carta hosts virtual roundtable on expiring business tax incentives

Join our expert panelists on Tuesday, June 4 at 10 a.m. PT / 1 p.m. ET for a discussion on the current tax landscape and practical guidance to navigating upcoming changes that will have significant impacts on your business. Strategies for adapting to the evolving tax landscape will be covered.

Innovation Coalition engages on tax policy priorities

Carta and its coalition partners submitted a statement for the record to the House Committee on Ways & Means advocating for tax policies to expand the innovation ecosystem, including:

• Expanding the qualified small business stock (QSBS) eligibility to more businesses.

What’s next: As 2025 draws near, many important provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire.

Supreme Court upholds CFPB funding structure

In a 7-2 decision, the Supreme Court held the CFPB’s funding mechanisms do not violate the Constitution’s Appropriations Clause.

HFSC advances SEC reform package

The House Financial Services Committee advanced the SEC Reform and Restructuring Act.

News to know

• Crypto bills to reach the House floor next week.
• Senate votes to kill SEC crypto accounting rule.
• Federal court blocks CFPB credit card late fee rule.
• FTC’s antitrust case against private equity firm dismissed.

Upcoming events

• House Ways and Means Tax Subcommittee Field Hearing: Creating More Opportunity and Prosperity in the American Rust Belt - May 20 at 4:00 p.m. ET in Erie, Pennsylvania.
• SEC Chair Gensler to speak at the Investment Company Institute 2024 Leadership Summit - May 23 at 5:30 a.m. PT / 8:30 a.m. ET.
• Securities Enforcement Forum West 2024 - May 23 at 8:00 a.m. PT / 11:00 a.m. ET.
• CFTC Commissioner to speak at the Hellenic Capital Market Commission Public Conference - May 29 at 5:45 a.m. PT / 8:45 a.m. ET.
• OCC to host the Roundtable for Economic Access and Change (Project REACh) Financial Inclusion Summit on May 29-30.
• U.S. Department of Treasury: 2024 Conference on Artificial Intelligence & Financial Stability - June 6-7.