AI Regulation Tracker / Regulator posture
SEC withdraws its predictive-data-analytics rule, but AI marketing claims still face Section 206 enforcement
The SEC pulled its proposed conflicts-of-interest rule for predictive data analytics, yet advisers and broker-dealers remain bound by fiduciary duty, the Advisers Act, and the Marketing Rule when they use AI or advertise it.
The Securities and Exchange Commission has withdrawn its proposed rule on Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers, docketed as S7-12-23. The proposal, introduced under the prior chair, was pulled as part of a group of pending proposals the current Commission decided not to carry forward. For advisers and broker-dealers that spent 2023 and 2024 preparing for a new, AI-specific conflicts regime, the practical message is narrower than the headline suggests. A proposal that never took effect is gone. The duties that were already in force are not.
What the withdrawal actually removes
S7-12-23 was a proposal, not a final rule. It would have required firms to identify and eliminate or neutralize conflicts of interest arising from the use of predictive data analytics and similar technologies in investor interactions. It drew heavy industry criticism for its breadth, including concern that its definition of covered technology reached far beyond AI. Because it was withdrawn before being finalized, nothing that was binding has changed. Firms that paused implementation planning were, in effect, waiting on a rule that will not arrive in this form.
What the withdrawal does not do
The withdrawal does not create an AI carve-out from the securities laws. Investment advisers remain fiduciaries. Section 206 of the Investment Advisers Act still prohibits fraud, deception, and undisclosed conflicts, and it applies regardless of whether a conflict is generated by a human process or an algorithm. The Marketing Rule continues to require that statements in advertisements be fair, balanced, and substantiated. An adviser that overstates what its AI does, or that uses a model whose conflicts it has not addressed, is exposed under rules that predate and outlast S7-12-23.
AI-washing is the live enforcement track
The clearest signal of the SEC's continuing posture is its enforcement record on so-called AI-washing, the practice of overstating AI capabilities to attract clients. The Commission has settled charges against investment advisers Delphia (USA) Inc. and Global Predictions Inc. over claims about their use of artificial intelligence. Those settlements remain the operative precedent for how the SEC treats inflated or unsupported AI marketing. The lesson from those matters is straightforward: a firm should be able to substantiate every AI claim it publishes, and should not describe machine-learning or predictive features it does not actually deploy.
The practical standard for firms
For a registered adviser or broker-dealer, the compliance question is not whether AI is regulated. It is. The question is whether the firm can show its work. That means documenting where AI or predictive analytics sit in the advice or trading process, identifying the conflicts those tools create, disclosing them, and keeping marketing language tethered to what the technology verifiably does. Recordkeeping obligations apply to the inputs and outputs that support advertised claims. None of this depends on S7-12-23 being revived.
Reading the posture, not the proposal
The withdrawal fits a broader pattern of the current Commission declining to advance rule proposals inherited from the prior administration. It should be read as a change in rulemaking priorities, not as a retreat from enforcement. Advisers who interpret the withdrawal as permission to loosen AI disclosure or marketing controls would be relying on the absence of a proposed rule while ignoring the presence of long-settled ones. The enforcement staff has already shown, through the AI-washing settlements, that it will apply existing authority to AI conduct.
The safe operating assumption for financial-services professionals is that AI use and AI marketing sit squarely inside the existing framework. Fiduciary duty, Section 206, and the Marketing Rule did the regulating before S7-12-23 was proposed, and they continue to do it now that the proposal is gone.
Frequently Asked Questions
What did the SEC change about the predictive data analytics rule?
The SEC withdrew its proposed rule S7-12-23, "Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers," as part of a set of prior-administration proposals it chose not to finalize. The proposal was never in force, so no binding requirement was removed.
Who is affected by this?
SEC-registered investment advisers and broker-dealers that use AI or predictive analytics in advice, trading, or client communication, and any such firm that advertises AI capabilities to clients or prospects.
Does the withdrawal mean AI is now unregulated for advisers?
No. Fiduciary duty, Section 206 of the Investment Advisers Act, and the Marketing Rule still govern AI use and AI marketing claims. The SEC's AI-washing settlements with Delphia and Global Predictions remain the enforcement precedent for overstating AI capabilities.
What is the single most important step to take now?
Audit marketing and client-facing materials for AI capability claims and confirm each is accurate and substantiated, and document how any AI or predictive tools are used and what conflicts they create, so the firm can defend both under existing rules.
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Informational analysis for working professionals, not legal advice. Confirm how any rule applies to your situation with qualified counsel.