On December 2, Brian Daly, Director of the SEC’s Division of Investment Management, spoke to the American Bar Association’s Federal Regulation of Securities Committee’s Private Funds Subcommittee and Investment Advisers and Investment Companies Subcommittee.
In his remarks, Mr. Daly outlined the Division’s priorities over the next four years, grouping them into four key areas:
- Deregulatory efforts
- Modernization of existing rules
- Democratization of alternative asset investments
- Promotion of artificial intelligence
Deregulation
Mr. Daly stated that thoughtful and measured deregulation can unlock value. As an example, he cited the SEC’s 2019 decision to streamline the ETF approval process. In just six years, exchange-traded funds have significantly reshaped retail investing.
He similarly noted that regulatory restraint has allowed the private fund market to flourish. Mr. Daly described hedge funds, private equity funds, and private credit funds as uniquely American innovations that have transformed institutional investing and introduced compensation structures that align managers and investors in novel ways. He also credited the United States’ lighter-touch regulatory approach, which allows sophisticated investors to manage their own risks rather than rely on heavy-handed oversight.
Looking ahead, Mr. Daly indicated that the Division expects to be receptive to industry input on how existing rules might be refined to better facilitate innovation. He noted that the SEC and its staff will increasingly ask, “Why is this rule still on the books?” in a variety of regulatory contexts.
Modernization
Mr. Daly also emphasized the need to modernize the SEC’s rulebook. While many rules were well-intentioned when adopted, and their underlying policy goals often remain valid, he noted that the requirements themselves have become outdated.
As an example, he pointed to the Custody Rule, which did not anticipate an investment landscape that includes digital assets.
If and when the Division recommends rule changes to the broader Commission, Mr. Daly stated that the goal will be to propose updates that are platform-independent, technology-neutral, and designed to remain relevant as markets continue to evolve.
Democratization of Markets
On the topic of market democratization, Mr. Daly referenced a recent Executive Order issued by President Trump directing the Department of Labor to expand access to alternative investments within 401(k) retirement plans. He noted that the Division of Investment Management is working closely with the Department of Labor in connection with ERISA plan considerations.
More broadly, Mr. Daly explained that the Division does not view its oversight mandate as a call to introduce sweeping new rules that fundamentally alter how private funds are structured, marketed, or operated. Instead, he suggested that investors and markets may be better served by a thoughtful, incremental reassessment of the existing regulatory framework across different access points, investment structures, and disclosure regimes.
From a rulemaking perspective, Mr. Daly made clear that the SEC does not intend to withdraw from oversight of retail participation in private funds. Rather, the agency plans to allow industry participants sufficient space to innovate. When SEC intervention becomes necessary, he stated, it will occur deliberately — but that time is not now.
He predicted that observers should expect to see a series of targeted regulatory actions, followed by ongoing staff engagement and evaluation. His hope is that, over the next three to four years, these measured steps will collectively reflect the evolving nature of financial markets and the needs of today’s investors.
Artificial Intelligence
Mr. Daly also identified artificial intelligence as an area of growing importance for the Division and the broader financial ecosystem.
He described AI as a potentially transformative force in the investment management industry — one that the SEC aims to enable, support, and regulate thoughtfully. Mr. Daly suggested that AI could meaningfully improve disclosure practices. By way of example, he imagined pairing traditional fund offering documents — often hundreds of pages long and written in dense legal language — with an investment adviser’s proprietary AI agent. Such a shift could move disclosure from a static, text-heavy format to a more interactive and personalized experience that better reflects how investors consume information today.
At the same time, Mr. Daly acknowledged that the rapid adoption of AI raises important regulatory questions, including:
- Whether AI-generated outputs constitute marketing material
- Whether such outputs may be considered investment advice
- When an AI agent itself may require registration
- How liability should be allocated among advisers, developers, and third-party platforms
Takeaway
Mr. Daly noted that SEC Chair Paul Atkins has referred to the agency as “The Innovation Commission.” In his view, firms seeking to innovate may find the current Commission receptive to thoughtful, measured change.
Mr. Daly’s comments echo the broader tone espoused by the SEC since the change in presidential administration in January, as illustrated by Chair Atkins’ early December remarks to the New York Stock Exchange on public company regulation.