SEC passes new rules for brokers’ use of AI to address conflicts of interest.

SEC passes new rules for brokers' use of AI to address conflicts of interest.

The Sweeping Changes to Broker Rules: An Insight into the Blockchain Industry

The blockchain industry witnessed a significant development on July 26 as the United States Securities and Exchange Commission (SEC) approved a set of sweeping changes to the rules governing the use of “optimization functions” by brokers. This move, driven by Chairman Gary Gensler, seeks to prohibit brokers from leveraging data analytics tools for their benefit.

The SEC’s Concerns and Proposed Changes

The SEC’s fact sheet on the matter states that “covered technology” includes the use of analytical, technological, or computational functions, algorithms, models, correlation matrices, or similar methods or processes. The SEC believes that the use of such technologies might lead to conflicts of interest during investor interactions or communications. This concern arises from brokers exercising discretion over investor accounts, providing information, or soliciting investors.

Chairman Gary Gensler’s Advocacy for Change

During the internal meeting streamed on the SEC’s website, Chairman Gensler passionately supported the proposed changes, even discussing his personal preferences and experiences. He invoked his distaste for the color green and his preference for romantic comedies. These personal anecdotes were used to illustrate the potential risks associated with brokers using predictive data analytics to target and lure potential investors.

Chairman Gensler acknowledged that rules regarding conflicts of interest already exist but argued that the rapidly evolving technological landscape calls for an update. By relating his own childhood story, he emphasized that personal preferences, discoverable through predictive data analytics, could be exploited by brokers to manipulate investors.

The SEC’s Adoption of the Proposal

In a 3-2 vote along party lines, the proposal received approval from the SEC commissioners. Commissioner Mark Ayuda highlighted the existence of laws covering potential conflicts of interest, leading him to decline support for the proposed changes. However, Chairman Gensler’s argument for adaptation in response to technological advancements prevailed.

It is worth noting that the rules updates currently apply exclusively to cryptocurrency and digital assets transactions made through broker/dealers registered with the SEC. Furthermore, the SEC clarifies that no crypto asset entity is registered as a national securities exchange, and no existing national securities exchange currently trades crypto asset securities.

The Road Ahead: Public Comment and Final Vote

With the proposal’s approval, the focus now shifts to the next steps in the process. The updates will be published in the Federal Register, providing an opportunity for citizens to submit comments for a 60-day period. After considering public feedback, the committee will hold a final vote.


The approved changes to the SEC’s broker rules mark a significant development within the blockchain industry. The prohibition of “optimization functions” aims to address potential conflicts of interest that arise from brokers’ use of data analytics tools for personal advantage. Chairman Gensler’s passionate advocacy for these changes, supported by personal anecdotes, reflects the evolving landscape of technology and emphasizes the need for updated regulations.

As the industry continues to innovate, it is crucial for regulators to adapt and ensure a fair and transparent environment. The upcoming public comment period provides an opportunity for stakeholders to contribute their insights and opinions. Ultimately, these changes will influence the future trajectory of the blockchain industry, promoting trust and investor protection.