Biden’s Executive Order on AI: A Transformation of AI Governance

On Oct. 30, 2023, the Biden Administration issued an Executive Order (EO) on Safe, Secure, and Trustworthy Artificial Intelligence. The order is a significant step toward responsible AI development, deployment, and regulation and places a strong emphasis on safety, security, privacy, equity and innovation.  

We asked Christopher Cox, BlueFlame Strategic Advisor, Former SEC Chairman, Nine Term Congressman, and White House lawyer – what he thinks this means for our industry. Read on to learn more. Clients should also review the EO to ensure that any impacted industries in their portfolio can stay ahead of additional rules and regulations that may be on the horizon. While the EO also touches on several topics that have been addressed outside of the AI space, privacy and fairness to investors continue to be a key focus and an action item as clients implement and execute their AI strategy. BlueFlame recommends clients retain AI based queries so they can seamlessly demonstrate their internal AI use if asked by a relevant regulator.

Here's an overview of what you need to know about the Executive Order and initial tips to help you prepare:

New Standards for AI Safety and Security

Developers will be compelled to share safety test results with the U.S. government and develop rigorous standards through the National Institute of Standards and Technology for enhanced safety and security. Working with a third-party AI provider can help firms comply with any downstream impact if regulators decide to widen the definition of AI provider.

Protecting Americans’ Privacy

There’s an emphasis on data privacy, urging Congress to pass bipartisan data privacy legislation and support the development and use of privacy-preserving techniques, including AI-based methods that protect personal data while training AI systems. It also provides funding to strengthen privacy-preserving research and technologies, ensuring that the government collects and uses commercially available information responsibly. We believe clients that can produce an archived record of their AI activities will be well positioned to answer questions from regulators.

Advancing Equity and Civil Rights

AI's potential to perpetuate discrimination is addressed by directing clear guidance for landlords, federal programs, and contractors. The order also tackles algorithmic discrimination through training and technical assistance, promoting fairness in the criminal justice system. For many of our clients, this will largely fall out of scope of AI initiatives and into their internal DEI practices.  

Standing Up for Consumers, Patients, and Students

While the potential benefits of AI are immense, it also raises the risk of injuring, misleading, or otherwise harming users. The order promotes the responsible use of AI in healthcare and encourages the transformative potential of AI in education, ensuring students receive quality education.  

A parallel image has been observed in a number of sweeps led by the SEC with a comparable focus on protecting investors in clients’ AI initiatives. We expect to see more of this from the SEC.

Supporting Workers

In the face of potential job displacement and increased workplace surveillance, the order directs the development of principles to protect workers, providing guidance to prevent exploitation. We believe this will largely fall out of scope for client AI initiatives but may affect portfolio companies.

Ensuring Responsible and Effective Government Use of AI

The order aims to streamline AI acquisition for government agencies, modernize federal AI infrastructure, and enhance government service delivery. Clients that invest in Government Services should review their exposure to these standards as they arise.

What does Christopher Cox Think This Means for the Alternative Asset Management Industry?

“Alternative asset managers stand to reap significant benefits from the rapid improvements in AI and tailored applications that are already well underway. The accelerated pace of development brings with it competitive opportunities, as well as new risks. Just as with cybersecurity in general, the risks of AI will be omnipresent and continuous, requiring savvy management -- whether or not firms lean into adoption on their own platforms.  

As the Executive Order demonstrates, the U.S. government is only beginning its regulatory effort that will soon extend to both federal and state legislation and agency regulations. National and pan-national governments in Europe and Asia are moving in the same direction. To keep pace in this dynamic environment, alternatives managers will need trusted partners to tap the rich benefits of AI customized for the alts space, while simultaneously staying on top of risks with the help of AI experts that can provide robust security and thorough compliance management. The rewards will be great for those who use these new tools wisely and keep themselves situationally aware.”   

Privacy, security and compliance continue to be the backbone of BlueFlame’s offering and we’re happy to discuss how we can support these initiatives. Contact the BlueFlame team to learn more about the new Executive Order, what it means for your AI journey, and how we can help you prepare for this new era of AI.