The state of state fiduciary laws for broker-dealers: Predicting the impact of state laws on SEC’s Regulation Best Interest enforcement

Susan Schroeder
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Susan Schroeder: Partner, WilmerHale, USA

Journal of Financial Compliance, 2021, vol. 5, issue 1, 75-84

Abstract: On June 30, 2020, US broker-dealers became subject to Regulation Best Interest (Regulation BI), a new standard of conduct imposed by the Securities and Exchange Commission (SEC) after a decade of debate and rulemaking. Regulation BI requires a broker-dealer recommending any securities transaction or investment strategy involving securities (including account recommendations) to act in the ‘best interest’ of the retail customer. Intended to address the different standards of care that registered broker-dealers and registered investment advisers owed their retail clients, Regulation BI tops the list of 2021 priorities for both the SEC and the Financial Industry Regulatory Authority (FINRA), the-self regulatory organisation that governs broker-dealers. In the coming year, initial SEC and FINRA enforcement actions regarding Regulation BI will illuminate the types of conduct or practices that regulators believe violate the new rule. As the federal regulators begin to define what Regulation BI does and does not permit, they do so against the backdrop of some state securities regulators who claimed that Regulation BI would not adequately protect investors. In response to Regulation BI, several states proposed or enacted their own different standards of conduct for broker-dealers. This paper describes the current and proposed fiduciary duties imposed on broker-dealers under state laws, the states’ ongoing assessment of Regulation BI and the resulting pressure that may be brought to bear on the SEC and FINRA as they begin to enforce Regulation BI.

Keywords: Regulation Best Interest; broker-dealer; fiduciary; NASAA; suitability (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2021
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