EXCLUSIVE US SEC to Examine Companies’ Digital Engagement Practices as Investor Concerns Grow

WASHINGTON, Aug. 24 (Reuters) – The United States Securities and Exchange Commission (SEC) to ask whether digital customer engagement innovations used by financial firms should be governed by existing rules or may require new ones commission chairman Gary Gensler told Reuters.

While the SEC’s thinking on the subject is at an “early stage,” its rules may need updating to account for an artificial intelligence-led revolution in predictive analytics, differential marketing and behavioral prompts designed to optimize customer engagement, he said.

The SEC plans to launch a broad consultation in the coming days that could have major ramifications for retail brokers, wealth managers and robo-advisers, who are increasingly using such tools to guide clients to products. higher income.

“We are in a time of transformation. I really believe that data analytics and AI can bring a lot of positives, but that means we have to look back and think about what that means for the user interface. , user engagement, fairness and bias, ”Gensler said. “What does this mean for the rules written at an earlier time? “

The consultation was in part sparked by January’s memes action saga, which led to a scrutiny of retail brokerage practices, including “gamification” – game-like prompts designed to maximize customer engagement. Read more

Gensler told Congress during a May hearing on the saga that the SEC would seek public opinion on gamification.

He now says the agency should look at the range of digital engagement practices. While such characteristics may increase consumers’ access to capital markets, they may also expose them to increased risk.

Some behavioral prompts could potentially be viewed as investment advice and regulated as such, he added.

“These digital engagement practices raise questions about when marketing becomes advice, when is it a recommendation, what is the duty of care? Said Gensler, who was previously a professor at MIT where he taught courses in financial technology.

Gensler echoed a growing concern among regulators that such tools could perpetuate discriminatory behavior. With some marketing practices, for example, companies personalize product offerings and prices based on customer preferences and profiles.

“The data that goes into these data analyzes, whether it’s machine learning or deep learning, will represent the biases of society, as they already exist,” he said.

SPACS

Since taking over as chairman of the SEC in April, Gensler has set an ambitious agenda, pursuing new disclosures related to climate change and the workforce, quelling the boom in acquisition company transactions to special purpose, or SPAC, and increasing scrutiny of US listings of Chinese companies.

Gensler said the new PSPC rules planned by the SEC would improve disclosures, especially when it comes to transaction costs and how later stage investors would be diluted.

Wall Street’s biggest gold rush in recent years, PSPCs are publicly traded shell companies that raise funds to acquire a private company and go public, allowing targets to bypass more onerous regulatory controls. an initial public offering.

But some critics say investors at a later stage are getting ripped off by SPAC’s sponsors, who are also the early investors.

“Think about the cost every step of the way: at the beginning, the sponsor fees, the subscription fees, the attorneys fees. It all adds up to a very intensive and expensive process,” Gensler said.

Reporting by Katanga Johnson and Chris Prentice; Written by Michelle Price; Editing by Sam Holmes

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