Compliance and Regulatory Alerts - 06-05-19

SEC Adopts Regulation Best Interest

SEC Adopts Regulation Best Interest

By a 3-to-1 margin, the SEC voted to approve its long-debated Regulation Best Interest (“Reg BI”) at an open meeting today.

In April 2018, the SEC proposed the set of rulemakings and interpretations designed to establish clear relationship standards between broker-dealers and investment advisers and their retail clients. Reg BI consists of three parts. The first part requires a broker-dealer to act in the “best interest” of a client investor. This new standard will “enhance the standard of conduct [for broker-dealers] beyond existing suitability obligations and make clear that a broker-dealer may not put its financial interests ahead of a retail customer when making recommendations." The second part provides additional interpretive guidance for advisers who have fiduciary obligations to investors under law. The third part requires that both broker-dealers and investment advisers provide a new Client Relationship Summary (“CRS”) to retail investors. The CRS highlights key differences between investment advisers and broker-dealers based on the types of services offered, and links to a dedicated page on the Commission’s education website.

The SEC also approved a new interpretation of the “solely incidental” provision of the Investment Advisers Act of 1940. The new interpretation exempts broker-dealers who provide investment advice from registration requirements if the advice is "solely incidental" to the conduct of their business, and if they don't receive "special compensation."

Stay tuned to the Bates news page for a complete report on the final version of the SEC’s Regulation Best Interest, implementation dates and how the new rule may impact your legal, regulatory and compliance obligations.

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