SEC Chairman requests review of techniques used on online brokerage platforms

On Behalf of | Oct 18, 2021 | Securities and Compliance

The chairman of the Securities and Exchange Commission discussed the use of digital analytics in finance in remarks at a conference this week, according to Financial Advisor.

SEC Chairman Gary Gensler addressed the topic at the ‘SEC Speaks’ conference at the Practising Law Institute. He noted that online finance platforms can now tailor products to individual investors using digital engagement practices. But he added that these capabilities also raise important policy considerations such as conflicts of interest, bias and systemic risks.

Given these concerns, Gensler said he has requested a review by the SEC staff into whether certain online engagement practices on these platforms might be considered investment advice and recommendations. Should they be defined as recommendations, the platforms could be subject to the Investment Advisers Act, which requires firms compensated for advising others about investments to register with the SEC and conform to regulations designed to protect investors.

Gensler pointed out that the SEC had requested public comment in August on the use of new and emerging technologies by financial industry firms, and would be assessing the potential conflicts of interest raised by the application of digital analytics.
“Some of these issues can (and will) be addressed under our existing rule sets, or through updates to those rules,” he said. “I’ve asked staff to take a close look at the feedback we received as they make recommendations for the Commission’s consideration, both related to brokers and investment advisers.”

Gensler also raised the issue that robo-advisers may use practices that might steer customers to higher-fee or more complex products even when those choices are not in their best interest.

The attorneys at Lewitas Hyman regularly monitor SEC, FINRA and other self-regulatory organization rule-making activities to help ensure that our clients are aware of any new policies, while assisting them in implementing any recommended changes. If your firm is facing an investigation from a regulatory agency, please contact us at (312) 291-4600 or through our online contact form to schedule a free consultation.

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