SEC Urged to Withdraw Predictive Data Analytics Proposal

June 2, 2024

42 3 minutes read

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SIFMA and SIFMA AMG submitted a letter to the Securities and Exchange Commission (SEC) on the proposed rules that would require the elimination or neutralization of the use of predictive data analytics (PDA) and PDA-like technologies by Broker-Dealers and RIAs. SIFMA strongly urges the Commission not to move forward with the proposed framework, and instead consider more appropriate ways to address potential risks related to the use of PDA-like technologies.

“The Proposed Rules would impose unreasonable and unworkable requirements on brokers and advisors and would limit their ability to use technology to provide valuable information and services to their clients,” said SIFMA President and CEO Kenneth E. Bentsen, Jr in the letter. “These impractical limitations would harm market efficiency, competition, and investors.”SIFMA and SIFMA AMG identified the following areas of concern:

The existing regulatory regime for investor communications by brokers and advisers is robust, reasonable, and effective, and the Commission has not shown any evidence or reason to justify new rules for their current or future uses of technology.
The Proposed Rules would require brokers and advisers to “eliminate or neutralize” conflicts of interest in all types of investor interactions and uses of technology, regardless of the existing framework or the nature of the relationship, and would burden many uses of technology that are unrelated to the Commission’s limited stated concerns.
The Proposed Rules would impose substantial and unjustified burdens which prevent a vast array of beneficial investor interactions and advisory practices.

The comment letter further expands on these views and can be found here.

Source: SIFMA

MFA Calls for SEC to Withdraw Predictive Data Analytics Proposal

Proposal would increase industry consolidation, reduce competition, and harm returns for institutional investors, including pensions, foundations, and endowments.

Managed Funds Association (MFA) urged the Securities and Exchange Commission (SEC) to withdraw its Predictive Data Analytics proposal in a comment letter. MFA’s letter details how the proposal improperly places a retail investor regulatory framework on alternative asset managers who work for sophisticated, institutional investors and why that’s bad for markets and the U.S financial system.

The letter highlights that the rule is overly broad and goes beyond the SEC’s stated goal of protecting retail investors from conflict-of-interest issues pertaining to the use of emerging technologies. The proposed rule’s definition of technology encompasses nearly every aspect of an adviser’s business, including technology such as basic Excel models and calculators. Its definition of “conflict of interest” includes any instance where an adviser receives any benefit even if the fund and its investors also benefit.

As a result of the broad definitions, the proposal will require advisers to halt operations instead of using disclosure and consent to mitigate conflicts whenever an adviser benefits from the use of a covered technology. This will disincentivize the use and development of technology and delay the most basic elements of portfolio management and client service, harming the ability of alternative asset managers to generate returns for institutional investors, including pensions, foundations, and endowments.

“The SEC’s Predictive Data Analytics proposal’s broad definitions will halt alternative asset managers’ business operations and stifle the use and development of financial technology. The proposal will harm markets, advisers, and institutional investors–including pensions, foundations, and endowments–by reducing the number of market participants and driving up the costs of investing,” said Bryan Corbett, MFA President and CEO. “The proposal exceeds the SEC’s stated goal in a manner that is unworkable for the alternative asset management industry. The SEC should withdraw the proposal.”

Additionally, MFA’s letter emphasizes that the proposal treats sophisticated, institutional investors as if they are retail investors. Congress designed a different regulatory regime for institutional investors. The proposal ignores statute and decades of precedent by introducing requirements that would raise costs, and make it untenable for many managers, especially small and emerging managers, to manage outside capital, forcing them out of the market, and ultimately reducing investment choice for institutional investors.

MFA’s letter to the SEC is available here.

Source: MFA