SEC Rule Proposal: Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker Dealers and Investment Advisers

 

SEC Rule Proposal: Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker Dealers and Investment Advisers

The financial sector has been speculating at guidance regarding the use of AI technology, and on July 26, 2023 the SEC stepped forward with their rule proposal on the use of predicative data analytics and these technological advancements. Although these systems can be optimized for investor interests, if not properly supervised, these technologies can effectively cause conflicts to arise and harm the end investor. The proposal defines these technologies as a “covered technology”, used in a firm’s engagement or communication with an investor/prospect:

“Any analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes that optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes of an investor. “

Per the proposal, if an Advisor uses, or may foreseeably use, a covered technology during client interactions the Advisor must:

• Evaluate and identify any conflict of interest associated with the use of covered technology in investor interactions, and determine whether any conflict of interests exists that place the firm’s or its associated person’s interest ahead of investors’ interests.
• Eliminate or neutralize the effect of conflicts of interest if discovered.
• Have written policies and procedures reasonably designed to prevent violations of the rule.
• Adhere to record-keeping requirements of the rule.

AdvisorAssist will continue to monitor this proposal as it goes through its comment period. Should you have any questions, please contact your AdvisorAssist Consultant for further information.

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