SBAI Response to SEC on Predictive Analytics Rule
Specifically, we highlight that the Securities and Exchange Commission ("Commission") failed to consider the effects of the rule on alternative managers, and arbitrarily proposed to apply the requirements to a significantly broader scope of clients for investment advisers. It is not clear if the rule was ever intended to apply to alternative investment managers and their institutional investor clients.
Proposed definitions are significantly overbroad - with the definition of “covered technology” encompassing virtually any tool, whether analogue or digital, that supports an investment adviser’s day-to-day business. As the definition lacks any limiting principle, it would categorize almost every use of mathematics in the investment management process as a “covered technology”. As consequence, the proposed compliance obligations contemplated by the rule are unworkable.
Existing rules and obligations already address conflicts of interests between investment advisers and their clients. Specifically, the Investment Advisers Act of 1940 lays out the fiduciary duties that all investment advisers owe to their clients, including duty of loyalty and duty of care. The Commission’s recent 2019 fiduciary interpretation specifically addresses conflicts of interest - noting that: “The duty of loyalty requires that an adviser not subordinate its clients’ interests to its own. In other words, an investment adviser must not place its own interest ahead of its clients’ interests.”