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US SEC Mulls New Rules For Customer Engagement Tactics

The U.S. Securities and Exchange Commission (SEC) is planning to release a wide-ranging consultation this week that could have repercussions for retail brokers, wealth managers and robo-advisers that rely on digitally-driven customer engagement tactics.

The SEC will seek input regarding these digital tools that are often used by financial firms in a quest to determine if new regulations are needed or if existing rules will suffice, SEC Chairman Gary Gensler said, according to a Reuters report on Tuesday (Aug. 24).

See also: SEC’s Gensler Vows To Go ‘After Misconduct Wherever We Find It’

Although changes are still at the starting gate, Gensler told Reuters that legislation could need an update due to the way artificial intelligence (AI) is being applied in predictive analysis, differentiated marketing strategies, and behavioral prompts, all developed to heighten customer engagement.

The tools are largely introduced as a way to steer customers to solutions that bring the seller a greater return, per the report.

Read more: SEC Chair To Talk Stock Trading Gamification At Thursday Hearing

“We’re at a transformational time. I really believe data analytics and AI can bring a lot of positives, but it means we should look back and think about what does this mean for user interface, user engagement, fairness and bias,” said Gensler. “What does it mean about rules written in an earlier era?”

The talk of new rules was prompted in part by the meme stock rally in January that turned the spotlight on how brokers conduct business, Reuters reported. The notion of gamification — using gaming techniques to inspire participation and spark extensive engagement — is an area Gensler told Congress in May that he had intended to actively pursue.

Further reading: AMC, Meme Stocks And The Threat Of The Subscription Model

Gensler said he believes the SEC should probe the full range of tactics companies use to advance the digital engagement of their customers. He added that behavioral prompts could fall under the category of investment advice and regulated accordingly, Reuters reported.

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