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Statement on the Proposals re: Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers

July 26, 2023

Thank you Chair Gensler, and my thanks to the staff for their presentations. When I speak at events outside of the Commission, I note that “My remarks reflect my views as an individual Commissioner of the SEC and not necessarily the views of the full Commission or my fellow Commissioners.” Today, as the proposed rulemaking concerns artificial intelligence, among other technologies, I would like to clarify that my remarks are my own and do not reflect the input of Chat GPT or any similar technology.

In all seriousness, the use of artificial intelligence and other predictive data analytics in our financial markets is an important topic. Artificial intelligence and other analytic tools can process and analyze vast quantities of information efficiently, which can enhance data driven investment decisions and reduce the cost of investment advice. However, there is a potential dark side to AI as well, leading to concerns about AI’s ability to adversely affect market integrity. However, today’s rulemaking focuses on a topic that has already been thoroughly covered and very recently at that: the conflicts of interest of broker-dealers and investment advisers.

Today, we are considering a proposal that would require investment advisers and broker-dealers that use certain technology in interacting with investors to “eliminate or neutralize the effects of” conflicts of interest.[1] The proposal also would impose a highly prescriptive process for evaluating, testing, and documenting a firm’s use of the covered technology with respect to conflicts of interest. The proposal is breathtakingly broad in its reach: a “covered technology” means any “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 or outcomes.”

While I have expressed my concerns that “today’s specific proposal will be tomorrow’s outdated rule,”[2] this proposal goes far beyond to encompass nearly everything. In this regard, consider that the proposed rules cover anything that is either analytical, technological, or computational. The release in fact acknowledges that a spreadsheet that embeds financial calculations would be a “covered technology.” It also appears that a myriad of commonly-used tools could qualify such as a simple electronic calculator, or an application that analyzes an investor’s future retirement assets based on changing the asset allocation mix among stocks, bonds, and cash. In this regard, the proposed standard for interacting with investors also suffers from vagueness: virtually any investor interaction that is not purely administrative appears to be covered. And even for benign technologies – such as in my calculator example – firms are still required to develop, implement, periodically review, and extensively document the specific steps of why and how the use or potential use of the technology, in any investor interaction, does not pose a risk of conflicts of interest. Under the rule text, even non-electronic calculators like an abacus might be legally subject to its scope. This regulatory vagueness and considerable compliance challenges may cause firms to avoid innovation or efficiencies through automation. Investors will be ill served as a result.

This proposed rulemaking is also wholly unnecessary. The Commission has spent considerable time recently to strengthen the regulatory framework to address broker-dealers’ and investment advisers’ conflicts of interests. In 2019, the Commission adopted Regulation Best Interest for broker-dealers, provided extensive interpretative guidance to investment advisers about their fiduciary duty, and adopted Form CRS to promote a conversation between investment professionals and their clients and customers about conflicts of interest, among other topics.[3] To the extent that this proposal addresses investor interactions that are not recommendations by broker-dealers and thus not covered by Regulation Best Interest or other rules or guidance, the proposal should have been narrowed to address that perceived gap. Instead, this proposal layers on duplicative requirements and an overly prescriptive approach to policies and procedures, all of which can lead to a “check the box” mentality at firms. Even worse, it could result in countless hours of efforts to document why things like the simple desktop calculator do not have any conflicts of interest.

I am concerned about the pattern of recent Commission proposals in which somewhat outlandish components were included, which drew the attention and focus of commenters. Subsequently, the Commission pivoted to a different approach at final rule adoption, the details of which had never been fully previewed to the public.[4] I disagree that so long as the Commission includes a vague reference, whether as a request for comment or a glancing discussion in the economic analysis, that such “logical outgrowth” is sufficient to provide the public with notice of the final rule.

For the foregoing reasons, I cannot support today’s proposals. I appreciate the efforts of the Divisions of Investment Management, Trading and Markets, Economic Risk and Analysis, the Office of General Counsel, and the other offices around the Commission that contributed to today’s efforts.

[1] Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers, Exchange Act Release No. 97990, (July 26, 2023), available at

[2] Mark T. Uyeda, Remarks at ICAEW Event – World-Class Regulation: Building Trust and Transparency in International Markets (May 12, 2023), available at

[3] Regulation Best Interest: The Broker-Dealer Standard of Conduct, Exchange Act Release No. 86031 (June 5, 2019) [84 FR 33318 (July 12, 2019)], available at; Commission Interpretation Regarding Standard of Conduct for Investment Advisers, Investment Advisers Act Release No. 5248 (June 5, 2019) [84 FR 33669 (July 12, 2019)], available at; and Form CRS Relationship Summary; Amendments to Form ADV, Investment Advisers Act Release No. 5247 (July 12, 2019), available at

[4] Mark T. Uyeda, Statement on Final Money Market Fund Reforms; Form PF Reporting Requirements for Large Liquidity Fund Advisers; Technical Amendments to Form N-CSR and Form N-1A (July 12, 2023), available at

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