SEC Proposes Rule on AI Predictive Analytics

At the end of July, the Securities and Exchange Commission (SEC) proposed a rule to regulate potential conflicts of interest associated with broker-dealers’ and investment advisers’ use of AI-related technologies in their interactions with investors. The rule covers not just “artificial intelligence,” but also a range of other technologies including: any other analytical, technological, or computational function, algorithm, model, correlation matrix, or similar method or process that optimizes for, predicts, guides, forecasts, or directs investment-related behaviors. The rule applies to interactions with all clients of an investment adviser, including institutional investors, as well as investors in registered funds and certain private funds. For brokers-dealers, the rules only apply with respect to interactions with retail customers. SEC Chair Gary Gensler stated that predictive data analytics technologies provide an increasing ability to make predictions about individuals, which increases the risk that firms will put their interests ahead of clients or customers without an effective way of addressing the related conflicts. Comments on the proposal are due by October 10, 2023.

Click here to read a client alert from Dechert on the Predictive Analytics Rule.
Click here to read the proposed rule and a fact sheet on the rule.