S4:E10 | Reviewing the PDA Rule Proposal | Compliance In Context

Welcome back to the Compliance in Context Podcast! on today’s show, we do a deep dive on the recent rule proposal from the SEC on predictive data analytics technologies and some of the significant compliance challenges associated with that rule proposal and the push back we’ve seen from the industry. In our Headlines section, and in record-breaking time this year, we’ll review the 2024 SEC Examination Priorities pushed out by the Division of Examinations. And finally, we’ll wrap up today’s show with another installment of History Has Your Back, where a famous story involving the renowned anthropologist Margaret Mead gives us a little insight into the mark of where civilization begins, and perhaps a little insight into the mark of a good compliance program.

Show 

Headlines

• The SEC Division of Examinations releases its 2024 Examination Priorities.

Interview with Dalia Blass

• What does the SEC rule proposal say?
• What are some of the issues or challenges with the rule proposal and what are some of the key issues involved?
• What “covered technologies” are included in the rule proposal?
• What constitutes an “investor interaction”?
• How is conflict of interest defined in the rule proposal?
• What does “neutralization” of a conflict really mean?
• How does the definition in the rule proposal reconcile with the standards of conduct used by the Commission in other contexts?
• Does the proposal contemplate the impact to other rule proposals?
• Does the proposal provide details regarding the cost of complying with the rules as proposed?
• For those firms using predictive data analytics, does the proposal discuss who should be conducting the relevant assessments and testing or supervising this activity?
• Have there been any additional developments since the rule was proposed and what can firms do now?

History Has Your Back

• Developing an appreciation for the mark of civilization and how to approach issues inside your firm’s compliance program.

Quotes

09:19 - “It actually tracks some of these statements that we had heard from Chair Gensler. He has spoken previously several times about the use of technology by broker-dealers and investment advisors, and the potential for conflict to be embedded in the use of that technology when it comes to interactions with investors. So what this rule proposal does–the target of this rule proposal is to look at the conflicts of interest that could be associated with the use of predictive data analytics and find ways to make sure that these conflicts are being addressed by the brokers or the advisors. So that, you know, at its core, it is about understanding the conflicts and managing these conflicts with respect to these technologies.” - Dalia Blass  

20:08 - “It's really important to, first of all, appreciate the power of technology in our space and what it has delivered to the American main street investor, American investor in general.” - Dalia Blass   

22:52 - “So yes, there could be issues, but let's understand what the issues are (and if they're addressed) and do a cost benefit. Because the last thing we want is something that, frankly, would raise the cost so much, would be so onerous, would be so complex that, you know, it will not enable, you know, smaller broker dealers and advisors to compete and also become a significant barrier to entry for anybody wanting to come into this space.” - Dalia Blass   

39:11 - “Every rule, Patrick, regardless of how fantastically written it is, will have unintended consequences, will have interpretive issues, you know, will start as you as you build into your compliance network, you will start seeing the pull and push of problems, because you can never anticipate every single issue with a new rule that comes into play.” - Dalia Blass