Title: SEC AI Proposal Faces Opposition from Financial Industry Groups
Financial industry groups are pushing back against a proposal by the Securities and Exchange Commission (SEC) aimed at addressing conflicts of interest related to the use of artificial intelligence (AI) by financial professionals. The regulation has sparked concerns, with some industry associations calling for its withdrawal, arguing that it could harm retirement savers.
Released in August, the SEC’s rule proposal requires investment advisors and brokers who use AI and predictive data analytics with clients to eliminate or mitigate situations where technology favors the advisors’ or firms’ interests over those of the investor. This rule would encompass a wide range of technology and tools used by firms to optimize investment-related behaviors and outcomes.
The ERISA Industry Committee, representing retirement plan sponsors, expressed reservations about the rule, asserting that it would significantly impact various tools relied upon by investors, including those related to retirement savings. In a comment letter, the committee called for the withdrawal of the proposed rule, highlighting potential negative consequences for retirement plan participants.
Criticism of the SEC’s proposed rule has come from various quarters within the financial industry. Morningstar Inc., an investment research organization, plans to submit a comment letter criticizing the proposal, arguing that it is overly broad and attempts to address multiple issues like online trading gamification, AI, and conflicts of interest. The organization suggests that the rule’s reach is too extensive and may not effectively target the intended problems.
In a letter to SEC Chair Gary Gensler, 21 Republican members of Congress claimed that the AI proposal aims to modify existing regulations governing conflicts of interest for advisors, such as Regulation Best Interest for brokers and fiduciary duty for advisors. They urge the SEC to be forthright about its intentions if it seeks to replace existing standards.
The SEC’s AI proposal has prompted calls for the commission to reevaluate Regulation Best Interest and the interpretation of fiduciary duty under the Investment Advisers Act as an alternative approach. Critics argue that clarifying these existing regulations would provide more practical guidance compared to the broad and undefined nature of the proposed rule.
As the SEC considers feedback on its proposal, it is likely to receive similar concerns and opposing viewpoints from other comment letters. The broad and sweeping nature of the rule has raised alarm bells within the financial industry, with calls for the withdrawal or substantial revision of the proposed regulation.
It remains to be seen how the SEC will respond to the backlash and whether adjustments will be made to strike a balance between addressing potential conflicts of interest arising from AI use and avoiding unintended consequences that could limit access to financial services and reduce the effectiveness of financial wellness programs.
