Whalesbook
SEC Eases Stance on AI for Proxy Voting
A significant shift in regulatory perspective emerged from the U.S. Securities and Exchange Commission (SEC) regarding artificial intelligence. Brian Daly, director of the Division of Investment Management, stated Thursday that investment advisers are permitted to leverage AI tools, including large language models, to assist with proxy voting decisions.
These comments, delivered at a New York City Bar Association event, indicate a more accommodating approach compared to the cautious stance previously championed by former SEC Chair Gary Gensler. Gensler had frequently raised concerns about potential systemic risks and harmful outcomes stemming from AI provider concentration. Daly, however, emphasized the compelling opportunity AI presents for advisers grappling with the sheer volume and complexity of proxy votes across vast portfolios.
Human Oversight Remains Key
Despite the newfound openness, Daly cautioned that AI models designed to execute recommendations, not just advise, should not supplant human judgment. This distinction highlights the SEC's ongoing effort to balance technological advancement with investor protection.
The SEC is also reviewing President Donald Trump’s executive order that could impose new requirements on proxy advisory firms like Glass Lewis & Co. and Institutional Shareholder Services Inc. These firms, which advise investors on how to vote on corporate proposals, face potential registration requirements and scrutiny over their recommendations, particularly concerning environmental and social issues.
Daly indicated that more developments are expected regarding the proxy advisory industry, describing the SEC's upcoming work as a "big assignment."