7/13/2025

Gaining SEC regulatory approval and ensuring compliance for an AI ETF

A step-by-step playbook for leveraging AI inside your compliance workflow so the SEC will green-light (and keep green-lighting) an actively-managed “AI-enhanced” ETF

Phase How AI can speed & de-risk the task Key human-oversight checks 1. Map the rule set(Kick-off week) • Run an LLM-powered crawler across EDGAR to pull every ETF registration (Form N-1A) that relies on Rule 6c-11 or a comparable exemptive order and uses the words “AI” or “machine learning.”• Auto-cluster the filings and the SEC comment letters to surface the most common staff questions. CCO verifies that the rule library includes: 40 Act, Rule 6c-11, Rule 38a-1, Marketing Rule 206(4)-1, and the still-relevant 2023 Predictive Data Analytics (PDA) proposal—even though the PDA rule was withdrawn in June 2025, it still signals the Commission’s conflict-of-interest expectations. (SEC, wealthmanagement.com) 2. Draft the prospectus & SAI(Weeks 2-4) • Feed the LLM a “template” Form N-1A plus your strategy term-sheet → it drafts Item 4 (Investment Objectives), Item 9 (Risk Factors) and Item 16A (Fundamental Policies) with auto-cross-references.• AI red-flags any marketing phrases that previously triggered AI-washing enforcement (e.g., “first fully autonomous ETF,” “guaranteed AI alpha”). (SEC, Winston & Strawn) PM and fund counsel line-edit every section; fund board must still sign the 101-signature page and certify the XBRL tags. 3. Build the Model Governance Manual (Rule 38a-1 artefact) • Use generative AI to assemble a policy matrix that maps each model lifecycle step—data ingestion, feature engineering, training, drift tests—to a named control and evidence log.• Large-language retrieval agent inserts citations from publicly filed AI policies (AIEQ, Qraft, etc.) that state “Adviser retains full discretion over trades.” (SEC, smtp.qraftaietf.com) CCO certifies the manual; independent directors review and minute their approval as required by Rule 38a-1. (Legal Information Institute) 4. Exemptive relief or 6c-11 reliance • AI compares your facts to the 6c-11 eligibility checklist (portfolio transparency, custom-basket policy, daily website disclosures) and flags gaps.• If gaps exist (e.g., non-transparent structure), LLM drafts a Section 6(c) & 17(b) exemptive request citing the most analogous orders. Counsel validates that every precedent cited is still live post-6c-11. (web.acaglobal.com) 5. Pre-SUBMISSION compliance “bot attack” • Fine-tune a model on historic Division of Investment Management comment letters → it “stress-tests” the draft filing and generates a mock comment letter so you can fix soft spots before filing. Human team reviews AI’s mock letter; fixes must be made by counsel. 6. SEC filing & comment cycle • When real SEC comments arrive, an AI summarizer highlights which Items they hit and drafts suggested responses with inline redlines to the prospectus.• AI tracks response deadlines and builds the 1-pager “Outstanding SEC issues” dashboard for management and directors. Only the registered adviser may “speak” to the SEC; AI prepares drafts, humans send. 7. Marketing & road-show oversight • AI scans every deck, tweet, and press release for prohibited superlatives or unsubstantiated performance claims under the Marketing Rule 206(4)-1. (SEC, SEC) CCO must approve final materials; override log retained. 8. Post-launch continuous monitoring • Realtime trade surveillance bot checks every AI-recommended basket for liquidity, diversification, and issuer-cap rules before orders hit the OMS.• AI drafts Forms N-PORT, N-CEN, 24f-2, and the tailored 30e-3 shareholder report; humans e-sign and file.• Drift-and-bias detector writes a quarterly Model Validation Report for the board and stores it in the Rule 38a-1 files. Board reviews the report at its quarterly meeting; any “material compliance matter” is escalated per Rule 38a-1(e).

Four AI design principles the SEC (still) expects to see

1. Human fiduciary override – Adviser “may accept, modify, or reject” any AI output (exact wording mirroring AIEQ/Qraft). (smtp.qraftaietf.com)

2. Explainability & audit trail – Every trade proposal must be traceable back to model version X with hashed training set reference.

3. Conflict-mitigation logic – Document why optimisation objectives (return, cost, tracking error) do not systematically favour the adviser over investors—the same concern raised in the PDA proposal. (SEC)

4. AI-washing firewall – Automated scan compares all public claims to actual source code capabilities; flags mismatches for counsel (Delphia/Global Predictions precedent). (SEC)

Deliverables your filing package should include

Document How AI helps SEC touchpoint Prospectus (Form N-1A) + XBRL exhibits Auto-draft narrative & “risk factors” table; AI validates cross-refs. Filed via EDGAR; staff review. (SEC) Model Governance Manual Generated control matrix; live KPI dashboard. Board approval under 38a-1. Custom-Basket Policy (if any) LLM fills 6c-11 template; checks daily website-disclosure script. Exam priority item. Board minutes & CCO certification AI drafts, directors edit. Must be kept for 6 years. Marketing compliance log AI text-scanner with Marketing-Rule lexicon. Ready for Enforcement queries.

Common stumbling blocks (and AI fixes)

Pitfall AI safeguard Inconsistent AUM claims across channels NLP bot reconciles numbers across deck, press release, prospectus. Opaque back-test in pitch deck Auto-inserts the required hypothetical-performance disclosure legend. Failure to update website holdings daily Script compares website JSON vs. custodian file; pings Ops within 30 min. Model drift undetected Drift detector triggers board-level incident if predictive power drops below threshold you set.

Bottom line

AI won’t let you skip a single statutory requirement, but it can compress the SEC filing cycle, cut drafting errors, and provide the airtight books and records trail examiners love. Design your workflow so the machine does the heavy lifting— precedent mining, drafting, surveillance—while named fiduciaries own every final decision. That alignment is exactly what prior AI ETF prospectuses spell out and what recent SEC “AI-washing” cases have punished registrants for ignoring.

Follow the eight-phase roadmap above and you’ll hand the SEC a filing that shows innovation without sacrificing the human governance and transparency it still demands.