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New SEC Regulations Set to Transform Brokers’ Use of AI



The United States Securities and Exchange Commission (SEC) made a landmark decision on July 26, approving a series of changes to regulate brokers’ use of artificial intelligence (AI) and data analytics. 

The new rules are set to transform the landscape of broker-investor interactions and prevent their potential exploitation by brokerage firms.

SEC Chairman Gary Gensler played a key role in advocating for the rule changes during the internal meeting streamed on the SEC’s website. He expressed concerns about brokers using data analytics tools, commonly referred to as “optimization functions,” to target and entice investors, which could potentially lead to conflicts of interest.

Furthermore, one of the SEC Commissioners, Mark Uyeda acknowledged the existing rules governing conflicts of interest between brokers and investors but declined to support the proposed rule changes, citing their adequacy. 

However, Chairman Gensler stressed the importance of updating the regulations to keep up with the evolving technological landscape.

The SEC committee voted 3-2 in favor of the rule changes, with Commissioners Hester Peirce and Mark Uyeda dissenting. The decision fell along party lines, reflecting the contrasting viewpoints on the necessity and scope of the new regulations.

The approved changes will initially apply solely to cryptocurrency and digital asset transactions conducted through broker-dealers registered with the SEC. 

The agency clarified that no crypto asset entity is currently registered as a national securities exchange, which exempts traditional exchanges like the New York Stock Exchange and the Nasdaq Stock Market from these rules.

The SEC plans to publish the updates in the Federal Register, allowing a 60-day period for public comments before holding the final vote. 

The move is expected to garner significant attention and debate from both industry experts and the public.

As the regulatory landscape undergoes a transformation, investors and brokerage firms alike are closely monitoring the developments, which have potential implications for the broader financial industry.

Read also; U.S. Financial Committee Greenlights Blockchain Regulatory Certainty Act

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