White House asks for input on AI regulation

White House asks for input on AI regulation

Author: The Carta Policy Team
Read time:  7 minutes
Published date:  May 25, 2023
SEC prepares to take aggressive action in the private fund sector.


  • Default deadline looming with no deal in place

  • SEC enforcement chief signals strong focus on private fund advisers

  • White House continues drumbeat on AI as Europe rushes to regulate

  • HFSC advances legislation to expand retail access to private funds

To the bitter end: debt limit countdown reaches single digits

With less than a week to go before June 1, Treasury’s working X-date projection, negotiators are making progress but have yet to strike a deal to raise the debt limit and prevent an historic default. Discussions remained tumultuous over the week bringing further clashes over Republicans’ requested spending cuts and Democrats’ opposition to expanding work requirements for certain welfare programs. Financial markets have started to react to the possibility that DC does not reach a deal, with potential credit downgrades on the table. Negotiations will continue over the holiday weekend. 

What to expect: Both sides are actively trying to avoid default and the resulting ramifications for the domestic and global economy. 

Risks for Biden

The administration has the most to lose, as a probable recession and the damaging blow to America’s reputation would greatly endanger Biden’s 2024 reelection efforts. President Biden needs to manage a diverse caucus—and a progressive left that is growing frustrated with negotiations—to deliver moderate votes in the House and a large number of votes in the Senate. 

Risks for McCarthy (and House incumbents)

Any compromise will alienate both the progressive and far-right factions on Capitol Hill, meaning Speaker McCarthy will have to rely on moderate Democrats to move a bipartisan deal through the House. Incumbents in contested congressional races will also be in trouble as the ramifications of default hit pocketbooks across America—and they sit in swing districts.  While successfully averting a default would be a relief, it could reignite tensions within the Republican caucus depending on the contours of the deal: Speaker McCarthy’s aim is to reach a deal that allows his right flank to vote no, but respect the progress he made and not seek to displace him as Speaker. If the House passes a bipartisan deal, it will clear the Senate. 

Our bet

Given the economic and political realities, a bipartisan deal is still the most likely outcome. As of this writing, we are still optimistic a deal comes together and passes either before the debt limit is breached (or shortly thereafter). In Washington, deals often come together quickly at the 11th hour, but this months-long standoff is characteristic of the broader unwillingness to compromise that dooms many promising legislative efforts. 

SEC enforcement chief signals strong focus on private fund advisers

In remarks this week, the SEC’s Enforcement Director Gurbir Grewal noted that private funds were a “substantive priority area” of focus, particularly around conflicts of interest and fees and expenses. Under Chair Gary Gensler, the SEC has increased its scrutiny on private funds (from both a rulemaking and enforcement perspective) in an effort to increase transparency and curb the growth of the industry. Earlier this year, the SEC released its exam priorities, which noted private fund advisers would be a significant area of focus. From a rulemaking perspective, the SEC’s agenda contains a number of items that will significantly impact how the private fund industry operates, including its private fund adviser proposal and custody rule proposals.

Why it matters: The SEC’s focus on private funds represents a seismic shift in the agency’s approach to regulating the industry, and SEC scrutiny is likely to increase as more rulemakings come online. Expect the SEC to focus its examination and investigative efforts on conflicts, fees and expenses, valuations, and investor communications around performance and ESG metrics. While a number of these initiatives only apply to SEC-registered private fund advisers, the SEC could still apply many of the principles underlying these regulations to venture capital fund advisers through its anti-fraud authority if it considers their actions fraudulent, deceptive, or manipulative. 

White House continues drumbeat on AI as Europe rushes to regulate

The White House announced another series of actions related to AI this week, including an updated National AI R&D Strategic Plan, which outlines key priorities for federal investment in AI R&D, and a new report on the risks and opportunities related to AI in education. Most notably, the announcement highlighted an RFI issued by the White House Office of Science and Technology Policy that seeks public input on critical AI issues. The RFI includes 29 questions that touch on several key topics:

  • National security: Understanding risks associated with AI in order to protect rights, safety, and national security

  • Equity & inclusion: Using AI to advance equity and strengthen civil rights, and understanding how AI has the potential to negatively impact particular groups

  • Democracy: Potential ways AI can be used to bolster democracy and civic participation

  • Economic opportunity: Promoting economic growth and quality jobs, while also recognizing the potential harms and tradeoffs that may occur from leveraging AI across the economy

  • Government use: The responsible use of AI by the federal government

Have a stake in AI? Responses from interested individuals and organizations are due by 5 p.m. ET on July 7, 2023.

Europe pushes to regulate—too fast in the eyes of some U.S. tech companies

After asking U.S lawmakers for more regulation surrounding AI in Congressional testimony last week, OpenAI CEO Sam Altman threatened to pull ChatGPT from Europe in response to the EU’s planned AI Act, which would require disclosures around copyrighted data that could threaten commercial competitiveness, as well as a provision that would make companies responsible for how their AI systems are used—potentially opening companies such as OpenAI and Google to ongoing legal liability. U.S. tech companies, led by OpenAI and Google,  expressed worry that the EU is moving too fast in their push to regulate, and have asked the EU to conduct further research.

Why it matters: The RFI indicates that the U.S. government is still in the information-gathering stage when it comes to AI, though an  $140 million investment in responsible American AI R&D signals the government acknowledges the importance of this technology, and the need to shape its evolution. While this likely means we’re far from the implementation of a comprehensive AI policy framework, the RFI presents a great opportunity for companies and engineers working with the technology to provide feedback as policymakers consider regulation.

HFSC advances legislation to expand retail access to private funds

The House Financial Services Committee advanced a number of bills aimed at increasing investor access to private market investment opportunities with bipartisan support. Though many bills will not advance to the president’s desk, the Increasing Investor Opportunities Act, which would broaden the ability for closed-end funds to invest in private funds by removing limitations imposed by SEC staff guidance, is a Carta priority and has bipartisan support, though the path forward will be challenging. 

Why it matters: Closed-end funds are investment vehicles that are regulated by the SEC and available to the general public. Removing arbitrary staff-imposed limitations on how much of the portfolio can be allocated to private markets will increase the ability for retail investors to access these investment opportunities while retaining the strong securities law protections of publicly traded, SEC-registered funds. The path forward will be challenging, but this legislation, and its intent to expand investor access to private markets is a Carta priority and we will continue to push this bipartisan bill with the goal of attaching it to a must-pass bill that can get signed into law. 

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The Carta Policy Team
Carta’s Policy Team aims to connect the policymaking community and venture ecosystem to build an ownership economy and advance policies that support private companies, their employees, and their investors.