WASHINGTON, D.C.— Legal Director and Securities Specialist Stephen Hall issued the following statement in connection with the release of a Fact Sheet concerning the Securities and Exchange Commission’s proposed rule to eliminate certain conflicts of interest associated with the use of predictive data analytics (PDA) by broker-dealers and investment advisers. The comment period for the rule ended October 10, when Better Markets will filed its full comment letter.

“The increasing use of artificial intelligence in securities recommendations and investment advice can harm investors by promoting investments or trading strategies that enrich the firms at the expense of their clients. The proposed rule represents an important step to combat the risks that these technologies pose to investors.  With the comment period closing next Tuesday, we wanted to highlight the importance of the proposed rule, which we strongly support.

“Conflicts of interest lie at the heart of many types of investor abuse in the financial markets, and today we are seeing the emergence of a new breed, based on technological advances.  Increasingly sophisticated technologies can be touted as offering state of the art financial advice, yet they can also cause harm on a broad scale by influencing investors to trade in ways that enrich the firm but lead to inferior results for investors.  The proposed rule represents a vitally important step to combat the specific risks that these technologies pose to investors, now and in the future.

“It’s important to bear in mind that the proposed rule in no way prevents broker-dealers and investment advisers from using these technologies in their interactions with investors. It simply requires that they eliminate or neutralize the conflicts of interest that could arise from the use of these evolving technologies. Broker-dealers and investment advisers should be able to comply with these sensible requirements since they control the PDA-like technologies that they use.

“Nonetheless, we’ve already seen the industry attack the proposed rule as overly broad and burdensome.  It is not.  The rule is narrowly tailored to address the specific risks that conflicts of interest arising from the use of PDA-like technologies pose to investors and prevents broker-dealers and investment advisers from using technology to infect their investor interactions with conflicts of interest that would be impermissible if they arose through other means.”

Read our full fact sheet here.