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Final SEC Rules on AI, ESG Scheduled for April

A final rule meant to “standardize” climate-related disclosures for issuers could also come in the spring, according to the White House Office of Management and Budget.

The SEC could unveil the final versions of dozens of its rules as early as April, according to the White House Office of Management and Budget. The potential final rules include those restricting conflicts for brokers using AI and other data tools, as well as ESG disclosures for investment advisors.

The SEC’s Fall 2023 agenda includes 14 proposed rules and 29 final ones, with proposals expected on exchange-traded products and initiatives on corporate board diversity, among others. 

In addition to SEC rules on “predictive data analytics” and ESG disclosures for advisors, the OMB lists the commission’s oft-delayed rule to standardize climate-related disclosures for issuers as having a tentative April 2024 date for its “final action.”

To be sure, these dates are not set in stone, and with so many rules listed, some are likely, if not certain, to be delayed further. For example, last January, the climate risk disclosure rule was originally listed as having a final action date in April 2023, according to Reuters.

The ESG disclosure rules for advisors purports to take on “greenwashing” in the space. By mandating disclosures, the commission hoped to assist investors in discerning which funds and advisors are more serious about ESG-related issues, and which are merely co-opting the terminology for advertising. 

While the rule wouldn’t hit advisors not marketing their services as incorporating ESG strategies, those who partially integrate them without boosting disclosures could be targeted.

The SEC’s rule requiring firms deal with conflicts related to tech tools like AI could also come this April. According to the rule, firms would have to “eliminate, or neutralize” conflicts if using “predictive data analytics” tools threatens to put the registrants’ interests ahead of customers. 

The proposal garnered criticism from industry lobbyists and advocates, including the Financial Services Institute and the U.S. Chamber of Commerce, while one Robinhood executive warned during a Consumer Federation of America conference earlier this month that the rule could inadvertently cause self-directed investors to flee the market altogether. Morningstar also worried that the rule cast too wide a net, dragging in technology that was already well-understood (and well-regulated). 

But SEC Chair Gary Gensler defended the proposed rule during a discussion at the annual Securities Industry and Financial Markets Association public policy conference.

“In this predictive data analytics era, where you can take a lot of data and you can bolt onto it an algorithm that’s optimizing … on the investment advisors’ profits, revenues, interests, therein lies a conflict,” Gensler said. “I don’t see how you can see it otherwise.”

Other rules tentatively slated to release final rules this spring include ones on Regulation Best Execution, cybersecurity risk management for investment advisors and registered investment companies and rules concerning Special Purpose Acquisition Companies, among others.

TAGS: Industry
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