Regulation Best Interest: A new standard of conduct for broker-dealers in recommendations to retail customers

Susan Light
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Susan Light: Partner, Katten Muchin Rosenman LLP, USA

Journal of Financial Compliance, 2020, vol. 3, issue 4, 302-317

Abstract: This paper analyzes the Securities Exchange Commission’s new Regulation Best Interest rule. Regulation Best Interest, which goes into effect on June 30, 2020, enhances the obligations that apply when a broker-dealer makes a recommendation to a retail customer. The new standard requires broker-dealers and their associated persons to act in the best interest of the retail customer at the time a recommendation is made without placing the interests of the broker-dealer ahead of the interests of the retail customer, and implement policies and procedures designed to identify and disclose conflict of interest. The Specific Obligations require Disclosure (providing specific disclosures before or at the time of the recommendation), Care (exercising reasonable diligence, care and skill in making the recommendation), Conflict of Interest (establishing, maintaining and enforcing policies and procedures reasonably designed to address conflicts of interest) and Compliance (establishing, maintaining and enforcing policies and procedures). This paper explains both the general and specific obligations, compares the current obligation against the enhanced Regulation Best Interest, and suggests practical compliance steps for the broker dealer.

Keywords: Regulation Best Interest; SEC; broker-dealer; conflict of interest; investor protection; disclosure obligations; duty of care (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:aza:jfc000:y:2020:v:3:i:4:p:302-317

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