The United States Securities and Exchange Commission (SEC) today announced that it is requesting information and public comment on matters related to the use of digital engagement practices by broker-dealers and investment advisers.
These tools include behavioral prompts, differential marketing, game-like features (commonly referred to as gamification), and other design elements or features designed to engage with retail investors on digital platforms (e.g., websites, portals, and applications), as well as the analytical and technological tools and methods (collectively called digital engagement practices (DEPs)).
“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 SEC 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 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 Commission is issuing the Request, in part, to develop a better understanding of the market practices associated with firms’ use of DEPs and the related analytical and technological tools and methods. The regulator also aims 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 Request also is intended 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.
The Request will facilitate the SEC’s assessment of existing regulations and consideration of whether regulatory action may be needed to further the Commission’s mission.
The public comment period will remain open for 30 days following publication of the Request in the Federal Register. The Commission encourages retail investors to comment on their experiences by submitting a Feedback Flyer, available here.