MFA submits economic analysis of PDA proposed rule to SEC

MFA submitted a supplemental comment letter to the Securities and Exchange Commission (SEC) on its Conflicts of Interest Associated with the Use of Predictive Data Analytics by Broker-Dealers and Investment Advisers proposal. MFA’s original letter on the Proposal highlighted the inadequacy of its cost-benefit analysis.

In light of MFA’s concerns regarding the Proposal, it tasked the economic consulting firm NERA to assess the Proposal’s potential economic impact. NERA’s report noted a number of expected economic ramifications for the private funds and broader investment management industry as well as material gaps in the Proposal’s cost-benefit analysis. The NERA report concludes that the Proposal raises significant concerns regarding its broad scope and potential substantial negative impact on the private funds industry and beyond.

Specifically, NERA reports that the Proposal, if enacted, will have the following effects on the industry:

  • Reduced technological innovation and efficiency
  • Substantial compliance costs that may force firms to close or consolidate
  • Decrease in competition and in the number and variety of investment opportunities available to investors

NERA found the following flaws with the Proposal’s cost-benefit analysis

  • Failure to conduct sufficient economic analysis
  • Failure to reasonably consider direct costs
  • Failure to reasonably consider indirect costs