Given recent acceleration of developments in artificial intelligence (AI), regulators and authorities globally have begun to examine the use of AI in various industries, including by investment advisers in connection with trading and investment decisions. Although the SEC has proposed a rule focused on conflicts of interest created by the use of predictive data analytics (PDA), including AI, (PDA Rule), U.S. regulators have yet to provide firm guidance on the application of existing regulations to advisers’ use of AI in connection with trading and investment activities. In the absence of such guidance, advisers should consider adopting AI policies and procedures that focus on insider trading concerns and are consistent with current best practices for alternative data (alt data) use. This guest article by Lowenstein Sandler attorneys Boris Liberman and George Danenhauer describes how advisers’ use of AI has evolved, discusses the applicable regulatory framework and explains how to apply alt data best practices to AI systems. See this two-part series on the SEC’s proposed PDA Rule: “Proposal Background and Overview” (Sep. 14, 2023); and “Issues and Implications for Hedge Fund Managers” (Sep. 28, 2023).