CFTC’S Year-End AI “Placeholder” Guidance
On December 5, 2024, the Staff of every market-facing division of the U.S. Commodity Futures Trading Commission (CFTC) issued a joint “Staff Advisory” on the use of artificial intelligence in CFTC-regulated markets and activities. This Staff Advisory is the first notable item of AI-related outreach or guidance since the CFTC Staff of several of these divisions issued a “Request for Comment on the Use of Artificial Intelligence in CFTC-Regulated Markets”1 on January 25, 2024.
The prime finding in the new Staff Advisory is a recognition that “AI may eventually touch upon all or nearly all aspects” of the derivatives trading lifecycle. The remainder of the five-page document is more of an effort to retain forward momentum in key areas, and less of a comprehensive inventory of issues and topics for marketplace professionals to execute upon.
The Staff Advisory expressly states that “CFTC-regulated entities will [need to] assess the risks of using AI and update policies, procedures, controls and systems, as appropriate, under applicable CFTC statutory and regulatory requirements.” For fund managers (i.e., commodity trading advisors and commodity pool operators), the Staff Advisory identifies two areas of focus and concern:
- Compliance and Recordkeeping – The Staff Advisory recognizes that AI tools could be used to create, revise or otherwise support financial information and risk disclosures provided to the CFTC, the National Futures Association or clients and investors. The Staff Advisory reminds managers that they will “remain responsible for ensuring that such information and disclosures are compliant with the applicable statutory and regulatory requirements” especially when using content generated by LLMs or other AI tools. (Note that Part 4 of the CFTC’s regulations have both substantive content and reporting requirements, as well as recordkeeping obligations).
- Customer Protection – While the examples cited in the Staff Advisory are not directly applicable to fund managers, the general “customer protection” warnings in the Staff Advisory serve as a warning to ensure that all uses of AI tools comport with (what is described in a Securities and Exchange Commission context as) a manager’s fiduciary duties of care and loyalty.
Those who expected expansive or numerous items of specific guidance will probably find the advisory to be underwhelming, but - given the still-unfolding impact of the Loper Bright case and the dramatic changes that the financial markets may experience in the next year - a reminder that the regulators are staying current on technological developments while attempting to preserve flexibility in future rulemaking and enforcement.
