In issuing the proposal, the comment period for which ended Oct. 10, SEC Chair Gary Gensler said it would help protect against conflicts of interest and "require that, regardless of the technology used, firms meet their obligations … not to place their interests ahead of investors' interests."
But in comment letters, industry stakeholders say the proposal goes too far.
"The proposed rules would impose unreasonable and unworkable requirements on brokers and advisers and would limit their ability to use technology to provide valuable information and services to their clients," said Kenneth E. Bentsen Jr., president and CEO of the Securities Industry and Financial Markets Association, in a comment letter. "These impractical limitations would harm market efficiency, competition and investors."
Several groups raised concerns that the proposal would raise costs for advisers and investors.
The proposal's "broad definitions will halt alternative asset managers' business operations and stifle the use and development of financial technology," said Bryan Corbett, president and CEO of the Managed Funds Association. "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."
The Insured Retirement Institute said in its letter that the proposal's broad definition of covered technology would significantly expand financial services firms' obligations far beyond the effective standards of conduct that already apply to recommendations. The proposed rules would apply to the use of nearly all types of technology that could be used in connection with a wide range of activities that are already appropriately regulated, including marketing, research and even investment education, IRI said.
"It appears that the SEC is using its concerns about evolving technology to justify a complete overhaul of the rules, across a variety of activities covered by existing regulations, that govern the conduct of firms and their representatives without directly proposing to amend those rules," wrote Jason Berkowitz, chief legal and regulatory affairs officer, and Emily Micale, director of federal regulatory affairs at IRI.
Moreover, the proposal would attempt to establish a new, "one-size fits-all," overbroad and unproven framework at the expense of the principles-based fiduciary duty, according to the Investment Adviser Association. The IAA also questioned whether Congress has granted the SEC such authority and requested the SEC to withdraw the proposal.
Instead, the IAA called on the SEC to study the risks and promise for investors of emerging technology, including artificial intelligence and machine learning, through outreach and public forums.
The Investment Company Institute said in a statement that the proposal would send investing "back to the Stone Age."
"Regardless of the merits of the intended policy objective, the rules would roll back the clock on the technological advancements that have provided so many benefits to investors — the same Main Street investors the SEC should be seeking to help participate in our capital markets," said Eric Pan, ICI president and CEO.
