February 9, 2024 - This week, Senators Ted Cruz (R. TX) and Bill Hagerty (R. TN) introduced a bill, the Protecting Innovation in Investment Act, that is designed to prohibit the Securities and Exchange Commission (the “SEC”) from finalizing, implementing, or enforcing its proposed rule, the Conflicts of Interest Associated with the Use of Predictive data Analytics by Broker-Dealers and Investment Advisers.  As the press release points out, the bill is specifically designed to deter the SEC from finalizing  the rule. The LSTA strongly supports the bill. Indeed, in its two comment letters, the LSTA urged the SEC to withdraw the rule, as it is unnecessary, overly broad, unworkable and based on dubious statutory authority.

Senators Cruz and Hagerty base their bill on many of the same points the LSTA raised in its comment letters.  They note in the release that “while the title of the SEC’s rule mentions predictive data analytics, giving it the illusion of specifically targeting cutting edge technology, the definition of covered technology would capture everything from simple spreadsheets to artificial intelligence (AI). If implemented, advisors and brokers would need to evaluate, test, and document all uses of technology in trading and client interactions to ensure conflicts of interests have been eliminated or neutralized, posing an enormous, and in some cases impossible, burden”.

In addition to the LSTA, the bill has received support from 14 other financial services trade associations.  We will continue to follow and report on the progress of the bill.