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SEC Adopts Regulation Best Interest, a New Form CRS and Other Guidance

Alert
06.14.2019
By Eric Mikkelson and Gerry Griffith

New rule includes a heightened standard for broker-dealers, new required disclosures for investment advisers and broker-dealers and other guidance

On June 5, 2019, by a vote of 3-1, the SEC adopted Regulation Best Interest (Regulation BI), using its rule-making authority under the Securities Exchange Act of 1934. Regulation BI closely emulates the proposed rules, published on April 18, 2018.

Regulation BI regulates broker-dealers and associated persons when they make recommendations regarding securities transactions and investment strategies to retail customers. While the adopted rule stops short of establishing a fiduciary duty for broker-dealers, the new standard moves in that direction. According to SEC Chairman Jay Clayton, Regulation BI requires broker-dealers to be “very candid” when advising investors.

Regulation BI heightens broker-dealers’ standard by requiring that, when advising a customer, the broker-dealer must act in the customer’s best interest by placing the customer’s financial and other relevant interests ahead of his or her own and address conflicts of interest by establishing, maintaining and enforcing policies and procedures relating to the conflict. Where addressing the conflict is an insufficient remedy, the broker-dealer must eliminate the conflict. A broker-dealer cannot satisfy the standard through disclosure alone.

Read our full analysis on Regulation BI, Form CRS and the other guidance.

For more information on Regulation BI please contact Eric Mikkelson or the Stinson LLP contact with whom you regularly work.

Gerry Griffith is a law student at Michigan State University College of Law and co-wrote this article while a summer associate at Stinson LLP.

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