A group of 13 trade associations has asked the SEC to withdraw its rule proposal focused on investment advisers' and broker dealers' use of artificial intelligence.
"While we support appropriate regulatory frameworks that protect investors, we find this proposal unnecessary, inadequately reasoned and fatally flawed," the group wrote in a comment letter dated Sept. 11. "We are also concerned that the commission lacks statutory authority to adopt these rules."
The trade associations — which include the Alternative Investment Management Association, American Investment Council, American Securities Association, Investment Company Institute, Insured Retirement Institute and Managed Funds Association — specifically raise concern that the proposal "is outright hostile to the use of technology."
Issued in late July, the proposal requires investment advisers and broker dealers to "evaluate and determine whether its use of certain technologies in investor interactions involves a conflict of interest that results in the firm's interests being placed ahead of investors' interests," an SEC news release stated. If such a determination is made, then firms must eliminate or neutralize the effect of the conflicts.
In their letter, the trade associations write there is a "lack of discernible boundaries" on what technologies the rule proposal covers and therefore it could produce "a de facto ban on the use of technology."
The proposal also exceeds the SEC's authority, the letter states, and does not account for "interconnectedness and interdependencies with other pending proposals."
"The commission should withdraw the proposal and engage with market participants to better understand the use of technology by firms and how firms holistically handle conflicts of interest to determine the necessity of further regulation in this area," the organizations write. "In the guise of addressing speculative concerns relating to predictive data analytics, the commission would dramatically change how advisers and broker-dealers interact with investors."
Last month, many of the same trade associations wrote a letter to the SEC urging them to extend their comment period for the proposal, which is set to close Oct. 10.
