SEC passes new ‘conflict of interest’ rules governing how brokers can use AI
The United States Securities and Exchange Commission (SEC) approved a set of sweeping changes to the rules governing the use of “optimization functions” by brokers in a committee vote on July 26.
We have an upcoming @SECGov Open Meeting on July 26 | 10am ETWe’ll be discussing:1⃣Cybersecurity Risk Management, Strategy, Governance, & Incident Disclosure2⃣Use of Predictive Data Analytics3⃣Exemption for Certain Internet Advisers From the Prohibition Against Registration
During an internal meeting streamed on the SEC’s website, Chairman Gary Gensler invoked everything from his disdain for the color green to his feelings on romantic comedies while advocating for the changes that essentially seek to prohibit brokers from using “optimization functions,” or data analytics tools to their benefit.
A fact sheet published on the SEC website on July 26 states that the “covered technology” includes “a firm’s use of analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes.”
The fact sheet states that the use of the covered technologies could constitute a conflict of interest through any investor interaction or communication, “including by exercising discretion with respect to an investor’s account, providing information to an investor, or soliciting an investor.”
Commissioner Mark Ayuda pointed out during the discussion that laws already existed covering the myriad potential conflicts of interest that could arise between brokers and the investors they represent. Ayuda ultimately declined to support the proposed rule changes.
Chairman Gensler acknowledged the currently existing rules, but added that the shifting technological landscape called for an update.
In defending
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