the eVolVing fiduCiary standard for Broker-dealers
Securities Section
Continued from page 50
U.S. Dep’t of Labor, 2018 WL
3301737 (5th Cir. 2018), which
held that the Department of
Labor exceeded its authority under
Title I of ERISA when it enacted
the Fiduciary Rule. The action
was spearheaded by several
industry groups, including the
U.S. Chamber of Commerce and
Securities Industry and Financial
Markets Association.
While many industry
participants welcomed the decision
to vacate the Fiduciary Rule, the
SEC proposed a new regulation
immediately on the heels of the
Fifth Circuit’s ruling. In fact, before
the Fifth Circuit issued its mandate,
the SEC had responded with its
long anticipated “Regulation Best
Interest” under the Securities
Exchange Act of 1934. According
to the proposal released on April
18, 2018, the Regulation Best
Interest requires broker-dealers
and registered representatives,
when recommending any securities
transaction or investment strategy
to a retail customer, to act in
the best interest of the customer
without placing the financial or
other interest of the broker-dealer
or representative ahead of the
customer’s interest. And while
the Fiduciary Rule required only
disclosure of conflicts of interest,
Regulation Best Interest requires
broker-dealers to establish,
maintain, and enforce written
policies and procedures reasonably
designed to identify, disclose, and
mitigate, or eliminate, material
conflicts of interest arising from
financial incentives associated
with such recommendations.
Industry participants have
criticized the SEC’s proposed
regulation on the basis that creating
a duty to mitigate or eliminate
conflicts would subject broker-
dealers to a higher standard than
investment advisors, and that the
requirement is ambiguous, making
compliance challenging. On the
other end of the spectrum, House
and Senate Democrats (in a letter
to SEC Chairman Jay Clayton)
criticized Regulation Best Interest
for not going far enough and
posited that brokers would be
subject to a weaker standard than
investment advisors.
Facing conflicting criticism, it
appears the SEC has proceeded
with caution through enhanced
vetting of the proposed regulation.
The SEC received nearly 4,000
submissions during the comment
period and hosted seven roundtable
discussions in various U.S. cities to
obtain feedback on the proposed
regulation. It remains to be seen
whether Regulation Best Interest
will be adopted with or without
modification. But once adopted,
it will likely be here for the long
haul (unlike the DOL fiduciary
rule) as a valid exercise of the
SEC’s
regulatory
authority.
Author:
Michael
Mariani -
Wiand
Guerra King
The Lawyer magazine is now DigiTaL!
The hCBa is pleased to introduce a new way to read the magazine —
in digital format. while the magazine will still be mailed to members
in print format, the new digital format also makes the magazine viewable
on computers and mobile devices and can be easily shared via email
and social media. access the digital magazine at hillsbar.com.
NOV - DEC 2018
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HCBA LAWYER
51