FACT SHEET

Conflicts of Interest 

and Predictive Data 

Analytics

U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 1 OF 2

Why This Matters

Firms have accelerated their use of certain newer technologies, such as predictive data 

analytics, artificial intelligence, or similar technologies. When the use of these technologies 

is optimized for investor interests, it can bring benefits in market access, efficiency, and 

returns. To the extent that firms use these technologies to optimize in a manner that places 

their interests ahead of investor interests, investors can suffer harm. Due to the scalability 

of these technologies and the potential for firms to reach a broad audience at a rapid speed, 

any resulting conflicts of interest could cause harm to investors in a more pronounced 

fashion and on a broader scale than previously possible. This proposal would require specific 

protections to compliment those already required under existing regulatory frameworks to 

better protect investors from harms arising from these conflicts.

How These Rules Would Apply

The proposed rules would apply when a broker-dealer or an investment adviser registered 

or required to be registered under section 203 of the Investment Advisers Act of 1940 (or, in 

each case, its associated persons) uses or reasonably foreseeably may use covered 

technology in an investor interaction.

The Securities and Exchange Commission proposed new rules and amendments to address 

certain conflicts of interest associated with the use of predictive data analytics by broker-dealers 

and investment advisers (“firms”) in investor interactions. The proposal would require: 

● A firm to eliminate or neutralize the effect of conflicts of interest associated with the firm’s 

use of covered technologies in investor interactions that place the firm’s or its associated 

person’s interest ahead of investors’ interests;

● A firm that has any investor interaction using covered technology to have written policies 

and procedures reasonably designed to prevent violations of (in the case of investment 

advisers) or achieve compliance with (in the case of broker-dealers) the proposed rules; 

and

● Recordkeeping related to the proposed conflicts rules.
FACT SHEET | Conflicts of Interest and Predictive Data Analytics

U.S. SECURITIES AND EXCHANGE COMMISSION PAGE 2 OF 2

“Covered technology” includes a firm’s use of analytical, technological, or computational 

functions, algorithms, models, correlation matrices, or similar methods or processes that 

optimize for, predict, guide, forecast, or direct investment-related behaviors or outcomes of 

an investor. The proposal generally would apply to a firm’s use of a covered technology to 

the extent it is used in connection with the firm’s engagement or communication with an 

investor, including by exercising discretion with respect to an investor’s account, providing 

information to an investor, or soliciting an investor.

What Would Be Required

A conflict of interest under the proposed rules generally would exist when a firm uses a 

covered technology that takes into consideration an interest of the firm or its associated 

persons.

The proposed rules and amendments would require a firm to evaluate any use or reasonably 

foreseeable potential use by the firm or its associated persons of a covered technology in 

any investor interaction to identify any conflict of interest associated with that use. Firms 

would be required to determine whether any such conflict of interest places or results in 

placing the firm’s or its associated person’s interest ahead of investors’ interests. Finally, the 

proposed rules would require a firm to eliminate or neutralize the effect of any conflicts of 

interest that place the firm’s or its associated person’s interest ahead of investors’ interests. 

The proposal would also require a firm that has any investor interaction using covered 

technology to have written policies and procedures reasonably designed to achieve 

compliance with the proposed rules. The policies and procedures would require, among 

other things, a written description of the process for evaluating any use (or reasonably 

foreseeable potential use) of a covered technology in any investor interaction and a written 

description of the process for determining how to eliminate or neutralize the effect of any 

conflicts of interest determined pursuant to the proposed rule to result in an investor 

interaction that places the interest of the firm or an associated person ahead of the interest 

of investors. In addition, firms would have to make and keep books and records related to 

the requirements of the proposed rules.

Additional Information:

Visit sec.gov to find more information about the proposal and the full text of the proposed rules. The comment 

period will be open for 60 days following publication of the proposing release in the Federal Register.