Tag Archives: James R. Burns

SEC Proposes Rules Limiting the Use of Artificial Intelligence by Registered Investment Advisers and Broker-Dealers

by Robin M. Bergen, Brant K. Brown, James R. Burns, Jennifer Kennedy Park, Rahul Mukhi, and Mohit Rathi

Photos of the authors

Robin M. Bergen, Brant K. Brown, James R. Burns, Jennifer Kennedy Park, Rahul Mukhi, and Mohit Rathi (photos courtesy of Cleary Gottlieb Steen & Hamilton LLP)

On July 26, 2023, the Securities and Exchange Commission (“SEC”) proposed new rules targeting the use of predictive data analytics and artificial intelligence (“AI”) by registered investment advisers (“RIAs”) and broker-dealers.[1]  The new proposed rules focus on the potential for conflicts of interest and the possibility that newer, more complex analytics models (including those using AI) might optimize decision making for RIAs and broker-dealers by placing those firms’ interests above the interests of their clients.[2]  The proposed rules would require RIAs and broker-dealers to: (i) evaluate whether their use of technologies “that optimize for, predict, forecast or direct investment-related behaviors or outcomes” create such a conflict of interest, and (ii) either stop using or address the effects of tools that place a firm’s interests before the interests of clients.  RIAs and broker-dealers will also will be required to adopt policies to ensure compliance with the new proposed rules.[3] 

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SEC Staff Issues Risk Alert on Continued Focus on Digital Asset Securities in Examinations

by Justin L. Browder, J. Christopher Giancarlo, Conrad G. Bahlke, James R. Burns, Anne C. Choe, Elliot J. Gluck, Elizabeth P. Gray, and Artyom Rogov

The staff of the Securities and Exchange Commission’s Division of Examinations (the “Division”) published a risk alert on February 26, 2021,[1] offering guidance on the digital-asset related activities that the Division will focus on during examinations of investment advisers, broker-dealers, exchanges and transfer agents.  Notably, the guidance applicable to investment advisers and broker-dealers, in certain instances, applies to both digital assets that are securities (“Digital Asset Securities”) as well as other digital assets issued and/or transferred using distributed ledger or blockchain technology – including, but not limited to, virtual currencies, coins and tokens – that may or may not be securities under the federal securities laws (“digital assets”). 

The Division’s continued focus on this area is further demonstrated by the inclusion of digital assets and FinTech as priorities in the Division’s 2021 Examination Priorities, which were published on March 3, 2021.[2]  The Examination Priorities release notes that examinations of market participants engaged in digital asset activities will continue to assess: (i) whether investments are in the best interests of investors; (ii) portfolio management and trading practices; (iii) safety of client funds and assets; (iv) pricing and valuation; (v) effectiveness of compliance programs and controls; and (iv) supervision of representatives’ outside business activities.

In this post, we outline the key areas of focus highlighted by the Division in the February 26th risk alert.

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