U.S. Senator and member of the Senate Banking Committee Bill Hagerty (R-TN) joined on Tuesday the effort against a new Securities and Exchange Commission (SEC) proposal claiming that it “would harm broker-dealers, investment advisors, and Main Street investors.”
This follows the SEC proposing a new rule on July 26th that requires broker-dealers and investment advisors, irrespective of their size, to confront challenges posed by predictive data analytics (“PDA”) and related technologies like artificial intelligence (“AI”).
Hagerty joined U.S. Senator Mike Rounds (R-SD), U.S. Congresswoman Ann Wagner (R-MO-02), and U.S. Congressman French Hill (R-AR-02) in sending a letter to Securities and Exchange Commission Chair Gary Gensler demanding answers on this “misguided proposal.”
According to the lawmakers, although the SEC’s proposed regulation claims to be technology-neutral, it looks fundamentally hostile to the technological improvements that have considerably improved the financial industry’s auditing, reporting, record-keeping, trading, and monitoring capabilities.
In its proposed rule, the SEC casts a wide net to define “covered technology,” defining it as 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.”
The lawmakers stated that this broad description encompasses not just cutting-edge technologies like artificial intelligence (AI), machine learning, and neural networks but also fundamental tools that broker-dealers and investment advisors frequently utilize in their operations, possibly even going as far as electronic calculators and abacuses.
According to the lawmakers, the cost of complying with these regulations is anticipated to be high, especially for smaller businesses looking to use technology to their advantage.
“While it is promoted as an investor protection measure, the Proposal’s true intention seems to be rewriting existing and well-functioning SEC regulations, such as Regulation Best Interest (‘Reg BI’) and the fiduciary standard. This is likely to result in a burdensome, one-size-fits-all approach being imposed on all broker-dealers and investment advisers, irrespective of the technology they utilize,” the lawmakers wrote.
“This new, untested standard would apply indiscriminately, whether or not firms provide personalized investment recommendations or advice to their customers….If the SEC’s goal is to replace Reg BI and the existing fiduciary standard with the Proposal’s heightened ‘best interest’ standard, it should be transparent and direct about its actions. It should not rely on the recent attention around predictive data analytics or artificial intelligence as a pretext. Furthermore, if the SEC intends to assume the role of a technology regulator, it should seek explicit authority from Congress,” the lawmakers added.
Other co-signers of the letter include U.S. Congressmen Andy Barr (R-KY-06), Bill Huizenga (R-MI-04), Blaine Luetkemeyer (R-MO-03), Frank Lucas (R-OK-03), Dan Meuser (R-PA-09), William Timmons (R-SC-04), Mike Flood (R-NE-01), Zach Nunn (R-IA-03), Scott Fitzgerald (R-WI-05), Young Kim (R-CA-40), Byron Donalds (R-FL-19), John Rose (R-TN-06), Bryan Steil (R-WI-01), Barry Loudermilk (R-GA-11), Monica De La Cruz (R-TX-15), Roger Williams (R-TX-25), and Alex Mooney (R-WV-02).
This is not the first time Hagerty has raised concerns about SEC policies. In May, Hagerty expressed issues with the SEC’s escalating pro-ESG, anti-free market agenda, which would harm American investors. Earlier this month, Hagerty also criticized Gensler for weaponizing the SEC beyond its Congressional mandate to target new technologies that expand access to American investors.
The Tennessee Star reached out to Hagerty for comment but did not receive a reply before press time.
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Hannah Poling is a lead reporter at The Ohio Star, The Star News Network, The Arizona Sun Times, and The Tennessee Star. Follow Hannah on Twitter @HannahPoling1. Email tips to [email protected]
Photo “Bill Hagerty” by Bill Hagerty.
