Trade Associations Ask SEC to Withdraw Conflict of Interest Proposal on PDA Technologies

Multiple trade associations urged the SEC to withdraw its proposal requiring broker-dealers and investment advisers to eliminate or neutralize conflicts of interest associated with the use of predicative data analytic ("PDA") technologies (see previous coverage). The associations, which include the Managed Funds Association, the American Securities Association and the Financial Technology Association, among others, argued that the proposal was "inadequately reasoned and fatally flawed" and that the Commission lacks statutory authority to adopt these rules.

In the comment letter, the trade associations argued that the SEC:

• takes a "hostile" approach toward technology by imposing (i) prohibitive costs to achieve compliance and (ii) a "lack of discernible boundaries on what is a 'covered technology,'" essentially creating a de facto ban of technology;
• lacks statutory authority to issue the proposal and failed to provide any analysis for which the SEC has based its authority under Advisers Act Section 211(h) and Exchange Act Section 15(l);
• does not account for the (i) implications of the "interconnectedness" of the proposal with other pending rulemakings and (ii) the numerous existing rules that already require identification and evaluation of the covered conflicts of interest; and
• potentially overrides current regulations by (i) eliminating firms' ability to meet their best interest obligations and applying a different definition of "conflicts of interest" than the one provided under Regulation Best Interest's Standards of Conduct and (ii) applying a different definition of "advertisement" than the Marketing Rule.