The Securities and Exchange Commission (SEC) is requesting information and public comment on the use of digital engagement practices by broker-dealers and investment advisers. These tools include behavioral prompts, differential marketing, gamification, and other design elements or features designed to engage with retail investors on digital platforms as well as the analytical and technological tools and methods.
“While new technologies can bring us greater access and product choice, they also raise questions as to whether we as investors are appropriately protected when we trade and get financial advice,” said Chair Gary Gensler. “In many cases, these features may encourage investors to trade more often, invest in different products, or change their investment strategy. Predictive analytics and other DEPs (digital engagement practices) often are designed with an optimization function to increase revenues, data collection, or customer time spent on the platform. This may lead to conflicts between the platform and investors. I’m interested in the varied questions included in the request for comment, and I’m particularly focused on how we protect investors engaging with technologies that use DEPs.”
The SEC said one reason for the request is so it develops a better understanding of the market practices associated with firms’ use of DEPs and the related analytical and technological tools and methods. It also hopes to learn what conflicts of interest may arise from optimization practices and whether those optimization practices affect the determination of whether DEPs are making a recommendation or providing investment advice.
The body also wishes to provide a forum for market participants, including investors, and other interested parties to share their perspectives on the use of DEPs and the related tools and methods. This includes potential benefits that DEPs provide to retail investors, as well as potential investor protection concerns. It will inform the SEC’s assessment of existing regulations and consideration of whether regulatory action may be needed.
The public comment period will remain open for 30 days following the publication of the request in the Federal Register. https://www.sec.gov/rules/other/2021/online-trading-investment-platforms-feedback-flyer.html.
