United States: SEC Advisory Board Focuses On Digital Engagement Practices

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At a meeting of the SEC Asset Management Advisory Committee, representatives of the SEC disputed members to consider the impact of advancements in FinTech on investors and the advice they receive.

SEC Chairman Gary Gensler Underline the potential of predictive data analytics and other digital engagement practices (“DEP”) to change an investor’s trading models or investment strategy. He questioned whether DEP maximizes investor returns or platform revenues. Mr Gensler reiterated his concerns about (i) conflicts of interest when DEPs optimize platform revenue, (ii) whether DEPs constitute investment recommendations or advice and (iii) historical biases in DEP algorithms (see related coverage here and here).

Acting Director of the Investment Management Division Sarah ten Siethoff raised the SEC request for comment on DEP (see previous cover here), indicating that the SEC is seeking to better understand (i) the use of analytical tools and other technologies by investment advisers to provide investment advice and (ii) the impact of DEPs on advisor interactions with their clients.

SEC Commissioner Hester M. Peirce recommended to change the definition of “small advisor” (that is to say, a company managing less than $ 25 million) under the IAA Rule 0-7 (“Small entities under the Investment Advisers Act for the purposes of the Regulatory Flexibility Act”). She noted that nearly 60 percent of advisers manage between $ 100 million and $ 1 billion, with companies as a whole having a median number of eight employees. She argued that these advisers are small businesses that are significantly impacted by the costs of additional regulatory requirements.

Primary sources

  1. SEC Event: Notice of the Meeting of the Asset Management Advisory Committee (“AMAC”) on the Sunshine Act
  2. SEC Statement, Gary Gensler: Remarks Prepared To The Asset Management Advisory Board
  3. SEC Statement, Sarah ten Siethoff: Remarks at the Asset Management Advisory Board Meeting
  4. SEC Statement, Hester M. Peirce: Asset Management Advisory Committee

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