New England Legal Foundation Urges SEC Not to Suppress Predictive Data Analytics in Investments
May 13, 2024
BOSTON – The New England Legal Foundation (NELF – www.newenglandlegal.org), submitted a comment letter urging the U.S. Securities & Exchange Commission’s (“Commission” or “SEC”) against proposed regulations that aim to suppress the use of predictive data analytics by broker-dealers and investment advisers. As NELF explains, the proposed PDA Rule is unlawful and beyond the power of the Commission for the following reasons:
- The SEC has proposed a new rule that would constrain the use of a wide range of technologies by broker-dealers and investment advisers. Under this rule, firms must conduct burdensome reviews of these technologies to guard against purely hypothetical and unspecified conflicts of interest that the SEC has not even identified or investigated.
- The SEC’s proposed rule exceeds the agency’s statutory authority. The SEC is not authorized to issue sweeping rules burdening emerging technologies without first identifying any actual conflict of interest that needs to be addressed.
- The SEC’s proposed rule defines away the statutory limitations on the SEC’s power by expanding the meaning of “conflict of interest” beyond what the plain meaning will bear. The Commission is not free to expand upon its statutory authority in this way.
- The SEC’s proposed rule violates the First Amendment, because it burdens the communication of truthful information to investors but is not remotely tailored to preventing actual conflicts of interest. This is an impermissible burden on free speech.
NELF’s comment was researched and drafted by Weil, Gotshal & Manges LLP. “We are pleased to assist the New England Legal Foundation in filing this comment letter,” said Weil Partner Mark Perry. “The SEC’s proposed rule would discourage broker-dealers and investment advisers from adopting new technologies, by requiring them to evaluate the use of such technologies for conflicts of interest, no matter how unlikely such conflicts of interest might be. This rule goes beyond the Commission’s statutory authority and violates the First Amendment. Broker-dealers and investment advisers should not be subjected to a burdensome regulatory scheme that has no lawful basis and does not comport with the U.S. Constitution.”
“The SEC cannot define PDA as a ‘conflict of interest’ to assert its regulatory authority any more than it could define Bambi as a conflict to regulate hunting,” said NELF President Dan Winslow. “We are hopeful that the agency will give some credit to the text of its congressional authority.”
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About the New England Legal Foundation: Founded in 1977, the New England Legal Foundation (NELF – www.newenglandlegal.org) is the leading non-partisan, non-profit public interest law firm in the region dedicated to economic liberty. NELF’s ongoing mission is to champion free enterprise, property rights, limited government based on rule of law, and inclusive economic growth. We believe that free enterprise is a foundational value of a democratic society and the best opportunity for people to lift themselves to prosperity.