On July 26, 2023, the SEC proposed new rules under the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940 (Proposed Conflicts Rules) to eliminate or neutralize the effect of specific conflicts of interest associated with a sponsor’s interactions with investors through technologies that optimize for, predict, guide, forecast or direct investment-related behaviors or outcomes. The Commission also proposed requirements to adopt and implement policies and procedures and create and maintain certain records in connection with the proposed rulemaking. The Commission seeks comments on or before October 10, 2023. This article explains the rationale behind the Proposed Conflicts Rules, the scope of their application; key definitions; core requirements such as evaluation, identification, testing, conflict of interest management and amendments to recordkeeping rules. It also covers responses from industry experts, including Dechert partner Mark Perlow and Akin Gump partner Brian Daly. For coverage of other recent developments in SEC rulemaking, see our two-part series on the proposed safeguarding rule: “Parameters and Requirements of the Long Overdue Update to the Custody Rule
” (Mar. 23, 2023); and “Concerns About the Scope and Specific Items for Closed-End Fund Managers to Monitor
” (Apr. 6, 2023).