SEC proposal to address conflicts with technology use raises questions (ThinkAdvisor)

The SEC wants to protect investors from conflicts of interest when their investment firm uses artificial intelligence and predictive data analytics to interact with them. However, the recent rule proposal addressing this issue is raising questions due to its broad definition of covered technology and how it intersects with Reg BI. The rule would impact firms that utilize machine learning, AI, algorithms and other predictive analytics for their online applications or customer software, comments FrontLine’s Founder and President Amy Lynch. SEC Chairman Gary Gensler has stated that the rule would help prevent broker-dealers and investment advisers relying on these technologies from placing their interests ahead of investors’ interests. But where firms could struggle and need clarification, adds Ms. Lynch, is if the rule’s requirements cross over into a firm’s advice under Reg BI. She explains that while Reg BI kicks in regarding any kind of investment recommendation, concerns raised about this proposal are how to differentiate between a software program that guides or nudges an investor to action and when that action crosses the line into advice under Reg BI. See ThinkAdvisor, “The SEC’s New AI Plan Expands Reg BI – and More”