SEC to review digital engagement practices used by brokers, advisers

On Behalf of | Aug 31, 2021 | Securities and Compliance

The Securities and Exchange Commission will begin a review of the digital engagement practices (DEPs) used by broker-dealers and investment advisers in the financial industry.

The action was announced Friday by the SEC, which said it is soliciting public comment on the new technologies that are being used by firms on their platforms to interact with customers.

These include differential marketing, behavioral prompts, gamification, websites, portals and applications, as well as analytical tools. The commission said that while these practices can be beneficial for access to markets and product choice, they also raise questions about whether investors are being adequately protected as they make their financial decisions.

“In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy,” said SEC Chair Gary Gensler. ”Predictive analytics and other DEPs often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors.“ Gensler said he will be focused on making sure that investors who engage with technologies using DEPs are protected.

The SEC said it not only wants to gain a better understanding of the use of DEPs, it also wants to ascertain whether conflicts of interest may arise from the practices employed by firms to optimize customer engagement.

The public comment period, which will be open for 30 days, is intended to provide a forum for the potential benefits of DEPs for retail investors, as well as potential concerns regarding investor protection.

The SEC encouraged retail investors to comment on their experiences through a Feedback Flyer available on their website.

Lewitas Hyman represents financial professionals, financial institutions and investors in investment loss, employment and disclosure matters, and in regulatory investigations. Contact us by phone at (312) 291-4600 or through our online contact form for a free consultation.

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