SEC Proposes New Requirements to Address Risks to Investors From Conflicts of Interest Associated With the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers
summary
The SEC has proposed new rules requiring broker-dealers and investment advisers to eliminate conflicts of interest arising from the use of predictive data analytics and AI.
paragraph
The SEC's proposed rules target broker-dealers and investment advisers using predictive technologies that may prioritize firm interests over investors. While no specific fraud charges or dollar amounts are cited, the proposal mandates that firms evaluate and neutralize conflicts of interest. The rules also require the implementation of written compliance policies and the maintenance of related books and records.
narrative
The Securities and Exchange Commission (SEC) has proposed new regulations to address potential conflicts of interest stemming from the use of predictive data analytics and artificial intelligence by broker-dealers and investment advisers. SEC Chair Gary Gensler noted that while these technologies can improve market efficiency, they also allow firms to optimize tools to place their own interests ahead of investors. The proposed rules would require firms to identify, eliminate, or neutralize any such conflicts to prevent widespread investor harm. Additionally, firms would be obligated to establish written policies and procedures to ensure compliance and maintain necessary books and records. The proposal builds upon existing legal standards regarding fiduciary duties and technological use. A public comment period will remain open for 60 days following the publication of the release in the Federal Register.
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Parties
gary genslernew rulesproposing releaseSecurities and Exchange Commissionuse of technologies
Keywords
investorsinterestsconflicts interestahead investorsinvestors interestspredictive datadata analyticsinterests aheadconflictsusefirmsinterestbroker-dealers investmentinvestment adviserstechnologies
Exhibits & Attached Documents (2)
Extracted insights
Entities 5
- person gary gensler
- person new rules
- person proposing release
- agency Securities and Exchange Commission
- company use of technologies
Triples 17
- Securities And Exchange Commission proposed new rules
- Gary Gensler said we live in an historic, transformational age with regard to predictive data analytics
- Gary Gensler said today's predictive data analytics models provide an increasing ability to make predictions
- Gary Gensler said firms are obligated to eliminate or otherwise address any conflicts of interest
- Gary Gensler said these rules would help protect investors from conflicts of interest
- Gary Gensler said firms meet their obligations not to place their own interests ahead of investors' interests
- use of technologies accelerated to optimize for, predict, guide, forecast, or direct investment-related behaviors
- use of technologies can be beneficial to investors in providing greater market access, efficiency, and returns
- firms can cause financial harm to investors
- conflicts of interest could cause harm to investors in a more pronounced fashion
- proposed rules would require a firm to evaluate and determine whether its use of certain technologies involves a conflict of interest
- firms would be required to eliminate, or neutralize the effect of, any such conflicts
- firms would be permitted to employ tools that they believe would address these risks
- proposed rules would require a firm to have written policies and procedures reasonably designed to achieve compliance
- proposed rules would require a firm to make and keep books and records related to these requirements
- proposing release will be published in the Federal Register
- public comment period will remain open until 60 days after the date of publication
PDF (from attached: pdf)
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The Securities and Exchange Commission today proposed new rules that would require broker-dealers and investment advisers (collectively, “firms”) to take certain steps to address conflicts of interest associated with their use of predictive data analytics and similar technologies to interact with investors to prevent firms from placing their interests ahead of investors’ interests. “We live in an historic, transformational age with regard to predictive data analytics, and the use of artificial intelligence,” said SEC Chair Gary Gensler. “Today’s predictive data analytics models provide an increasing ability to make predictions about each of us as individuals. This raises possibilities that conflicts may arise to the extent that advisers or brokers are optimizing to place their interests ahead of their investors’ interests. When offering advice or recommendations, firms are obligated to eliminate or otherwise address any conflicts of interest and not put their own interests ahead of their investors’ interests. I believe that, if adopted, these rules would help protect investors from conflicts of interest — and require that, regardless of the technology used, firms meet their obligations not to place their own interests ahead of investors’ interests.” The use by broker-dealers and investment advisers of technologies to optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes has accelerated. Use of such technologies can be beneficial to investors in providing greater market access, efficiency, and returns. To the extent that firms are using certain technologies in a manner that places their own interests ahead of investors’ interests, however, investors can suffer financial harm. Given the scalability of these technologies and the potential for firms to reach a broad audience at a rapid speed, any resulting conflicts of interest could cause harm to investors in a more pronounced fashion and on a broader scale than previously possible. Building off existing legal standards, the proposed rules generally would require a firm to evaluate and determine whether its use of certain technologies in investor interactions involves a conflict of interest that results in the firm’s interests being placed ahead of investors’ interests. Firms would be required to eliminate, or neutralize the effect of, any such conflicts, but firms would be permitted to employ tools that they believe would address these risks and that are specific to the particular technology they use, consistent with the proposal. The proposed rules would also require a firm to have written policies and procedures reasonably designed to achieve compliance with the proposed rules and to make and keep books and records related to these requirements. The proposing release will be published in the Federal Register. The public comment period will remain open until 60 days after the date of publication of the proposing release in the Federal Register.
OCR text (2,983c · html-text · 99% conf)
The Securities and Exchange Commission today proposed new rules that would require broker-dealers and investment advisers (collectively, “firms”) to take certain steps to address conflicts of interest associated with their use of predictive data analytics and similar technologies to interact with investors to prevent firms from placing their interests ahead of investors’ interests. “We live in an historic, transformational age with regard to predictive data analytics, and the use of artificial intelligence,” said SEC Chair Gary Gensler. “Today’s predictive data analytics models provide an increasing ability to make predictions about each of us as individuals. This raises possibilities that conflicts may arise to the extent that advisers or brokers are optimizing to place their interests ahead of their investors’ interests. When offering advice or recommendations, firms are obligated to eliminate or otherwise address any conflicts of interest and not put their own interests ahead of their investors’ interests. I believe that, if adopted, these rules would help protect investors from conflicts of interest — and require that, regardless of the technology used, firms meet their obligations not to place their own interests ahead of investors’ interests.” The use by broker-dealers and investment advisers of technologies to optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes has accelerated. Use of such technologies can be beneficial to investors in providing greater market access, efficiency, and returns. To the extent that firms are using certain technologies in a manner that places their own interests ahead of investors’ interests, however, investors can suffer financial harm. Given the scalability of these technologies and the potential for firms to reach a broad audience at a rapid speed, any resulting conflicts of interest could cause harm to investors in a more pronounced fashion and on a broader scale than previously possible. Building off existing legal standards, the proposed rules generally would require a firm to evaluate and determine whether its use of certain technologies in investor interactions involves a conflict of interest that results in the firm’s interests being placed ahead of investors’ interests. Firms would be required to eliminate, or neutralize the effect of, any such conflicts, but firms would be permitted to employ tools that they believe would address these risks and that are specific to the particular technology they use, consistent with the proposal. The proposed rules would also require a firm to have written policies and procedures reasonably designed to achieve compliance with the proposed rules and to make and keep books and records related to these requirements. The proposing release will be published in the Federal Register. The public comment period will remain open until 60 days after the date of publication of the proposing release in the Federal Register.