SIFMA Says Current Rules on Digital Engagement Practices Are Sufficient
SIFMA and SIFMA AMG responded to directed questions on proposed guidance by IOSCO on market intermediaries' use of digital engagement practices ("DEPs"). The guidance was proposed in IOSCO's November 2024 Consultation Report.
SIFMA responded as follows:
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On the Definition of DEPs. SIFMA defined DEPs as "methods of customer engagement, advertising, and education facilitated through digital means." SIFMA stated that a common regulatory definition is unnecessary due to DEPs continued evolution.
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On Agreement with Report Findings and Gaps. SIFMA agreed that DEPs can improve investor welfare by increasing financial literacy and market participation. SIFMA acknowledged risks, like conflicts of interest and unsuitable product steering, but argued that existing regulations (e.g. Regulation Best Interest) sufficiently address these concerns and recommended a deeper review of existing academic and regulatory literature to better inform the report.
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On Uncovered DEPs. In response to whether there are any other types of DEPs deployed by market intermediaries that are not covered in the report, SIFMA highlighted retirement calculators, portfolio monitoring tools and notifications about time-sensitive financial events.
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On Future Evolution of DEPs and Regulatory Implications. SIFMA asserted that DEPs are expected to continue evolving to meet investor demands, especially in self-directed trading platforms. SIFMA emphasized that restrictive regulations could hinder innovation and suggests maintaining principle-based, technology-agnostic frameworks.
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On Additional Risks or Benefits. SIFMA argued that principle-based frameworks are better equipped to manage the dynamic risks and benefits of DEPs. SIFMA cited existing rules like FINRA Rule 2210 ("Communications with the Public") and Regulation Best Interest as examples of effective technology-agnostic standards that address risks like misleading communications and manipulative practices.
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On Avoiding Conflicts of Interest. SIFMA identified disclosure and mitigation as key practices, recommending transparency about DEPs' influence on trading decisions and their associated costs. SIFMA said existing rules already enforce these standards effectively.
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On Maximizing Benefits for Investors and Regulators. SIFMA underscored the role of DEPs in enhancing financial literacy and improving investor outcomes, advocating for their encouragement rather than additional regulation. SIFMA suggested regulators support educational DEPs.
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On Global Regulatory Coordination. SIFMA promoted principle-based, technology-agnostic and interoperable frameworks to address cross-border DEP use. SIFMA warned against prescriptive and fragmented regulations.