SEC passes new ‘conflict of interest’ rules governing how brokers can use AI
The United States Securities and Exchange Commission (SEC) approved a set of sweeping changes to the rules governing the use of “optimization functions” by brokers in a committee vote on July 26.
We have an upcoming @SECGov Open Meeting on July 26 | 10am ET
We’ll be discussing:
1⃣Cybersecurity Risk Management, Strategy, Governance, & Incident Disclosure
2⃣Use of Predictive Data Analytics
3⃣Exemption for Certain Internet Advisers From the Prohibition Against Registration— Gary Gensler (@GaryGensler) July 20, 2023
During an internal meeting streamed on the SEC’s website, Chairman Gary Gensler invoked everything from his disdain for the color green to his feelings on romantic comedies while advocating for the changes that essentially seek to prohibit brokers from using “optimization functions,” or data analytics tools, to their benefit.
A fact sheet published on the SEC website on July 26 states that the “covered technology” includes “a firm’s use of analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes.”
The fact sheet states that the use of the covered technologies could constitute a conflict of interest through any investor interaction or communication, “including by exercising discretion with respect to an investor’s account, providing information to an investor, or soliciting an investor.”
Commissioner Mark Uyeda pointed out during the discussion that laws already existed covering the myriad potential conflicts of interest that could arise between brokers and the investors they represent. Uyeda ultimately declined to support the proposed rule changes.
Gensler acknowledged the existing rules but added that the shifting technological landscape called for an update.
In defending the need for change, Gensler related a story about his childhood:
“My mom used to dress my identical twin brother Rob in red and me in green. You say, ‘Rob Red, Gary Green.’ I might not act as favorably to green prompts. I love [my mother], but maybe a little too much green for me.”
Citing his personal disdain for green and disclosing to the panel that he’s “kind of a rom-com guy,” Gensler appeared to relate that his personal preferences — something ostensibly discoverable via predictive data analytics — were analogous to a broker using data to target and lure potential investors.
Related: Trading app Robinhood settles SEC charges for $65 million
The proposal passed in a 3-2 vote along party lines, with Commissioner Hester Peirce dissenting alongside fellow Republican Uyeda.
As it stands, the rules updates would only apply to cryptocurrency and digital assets transactions made through a broker-dealer registered with the SEC.
According to the SEC, “no crypto asset entity is registered with the SEC as a national securities exchange (like, for example, the New York Stock Exchange or the Nasdaq Stock Market). And no existing national securities exchange currently trades crypto asset securities.”
Next, the updates will be published in the Federal Register. Citizens will have 60 days from the document’s publication to submit comments before the committee holds a final vote.
As US conservatives rapidly shape the crypto landscape through policy, funding and grassroots adoption, progressives remain divided and hesitant. Progressives lack a unified strategy and risk losing relevance.
Following its latest freeze of nearly $86K in stolen USDt, Tether’s enforcement capabilities are again in the spotlight — raising questions about centralized control in stablecoin ecosystems.
Politics
£104bn of water industry investment will come from bill payers, environment secretary concedes
Steve Reed has conceded that the bulk of the £104bn of water industry investment which he boasts Labour has attracted since coming to office will come from bill payers.
In an interview with Sky News, the environment secretary sought to blame the previous Tory government for a string of high profile investors walking away from the sector over the last year.
Mr Reed does not accept claims that further threats to jail water bosses and promises to curb price rises have deterred investment.
Instead, he told Sky News that “by bringing in the £104bn of private sector investment that we secured at the end of last year, we can make sure that the investment is going in to support” the industry.
When challenged that the £104bn was total expenditure not total investment, and that bill payers would pay back this expenditure over the coming decades, Mr Reed conceded this was right – and the money ultimately is coming from bill payers.
“The money comes in from investors up front so we can do that spending straight away,” he said.
“Over decades, the investors got a modest return from the bills that customers are paying. That’s how investment works.”
Some investors have warned they do not think it viable to fund the UK water sector because of the hostile political tone of ministers and lack of certainty.
Ministers have said the government does not want to renationalise water as it would mean years of legal wrangling and cost a lot of money.
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Minister rules out nationalising the water
Labour has launched a record 81 criminal investigations into water companies over sewage dumping since winning the election last year.
Water company bosses could be jailed for up to five years and the companies fined hundreds of millions of pounds if they are found guilty.
Mr Reed committed to not interfering with those prosecutions, saying it would be “highly inappropriate” for any minister to do so.
Read more:
Key recommendations from the water report
Labour to eliminate unauthorised sewage spillages in 10 years
He rejected suggestions ministers will be pressured to ensure water bosses do not serve jail time as this will deter investors.
“It’s a judicial process, it would be highly inappropriate for any ministerial interference in the process,” Mr Reed said.
“They will work their way through the court system, as they should do, and ministers will decide on sanctions after.”
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