From cutting-edge technology, Bringing machine learning and AI to new payment rails will transform the world of financial services, including how fintech startups manage investor assets, assess the suitability of investments, and execute transactions. I am.
However, recent attempts by the Securities and Exchange Commission to expand the definition of fiduciary duties to investment advisers and the duty of broker-dealers to act in the best interests of their customers pose significant regulatory risks to these startups. may result in This shift is evident in recently proposed rules that would significantly reduce the use of artificial intelligence and other technologies by broker-dealers and investment advisors.
History of fiduciary duties of investment advisors
Investment advisors have long been viewed as fiduciaries for their clients. Although the Investment Advisers Act of 1940 (the primary federal law regulating investment advisers) does not explicitly impose fiduciary duties on advisers, the Investment Advisers Act of 1963 SEC vs. Capital Gainsthe Supreme Court found that this law is fundamentally based on the idea that advisors are fiduciaries.
Investment advisors looking to innovate will need to approach this area carefully to avoid mistakes that can seriously impact the survival of their business.
In this case, the court focused solely on whether the SEC can require advisers to disclose practices that give rise to conflicts of interest. Although the court accepted another argument that potential conflicts of interest in this case should be eliminated rather than simply disclosed, the SEC had limited disclosure requirements even if there were conflicts of interest. He pointed out that he refused to rule on this issue. There was great interest in this case.
Expanding on recent guidance
More than 50 years later, in 2019, the SEC interpretation release Advocating a broader view of the fiduciary responsibility of advisors. This standard includes a duty of care (which includes a duty to provide advice in the client’s best interests, seek the best execution of the client’s trades, and provide advice and oversight throughout the relationship) and a duty of loyalty. I am. This includes either the elimination of conflicts of interest or full and fair disclosure.
