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SIFMA Submits Written Statement On The SEC’s Regulation Best Interest To House Financial Services Subcommittee On Investor Protection, Entrepreneurship And Capital Markets

Date 14/03/2019

SIFMA submitted a written statement today to the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets in conjunction with a hearing entitled ‘Putting Investors First? Examining the SEC’s Best Interest Rule.’

“Regulation Best Interest would take the existing, well-functioning regulatory regime for broker-dealers and make it better,” SIFMA wrote in the statement. “In doing so, Reg BI would directly enhance investor protection and contribute to a heightened sense of trust and confidence among investors in their financial service professionals.”

As outlined in the statement, SIFMA generally supports the SEC’s Reg BI proposal because it significantly raises the bar from the current standards. Specifically, the proposed rule:

  • Significantly strengthens and materially exceeds the existing FINRA suitability standard. Under Reg BI, recommendations must be not only suitable, but also in the retail customer’s “best interest,” meaning that broker-dealers cannot put their interests ahead of the interests of the customer.
  • Holds broker-dealers to an even higher standard than the one that applies today to investment advisers because disclosure of conflicts alone does not satisfy the standard.With respect to material conflicts arising from financial incentives, under Reg BI disclosure is not enough, broker-dealers must either eliminate, or disclose and mitigate, such conflicts of interest.
  • Preserves access and choice for investors while providing meaningful protections in areas that the Department of Labor’s (DOL) conflict of interest rule (DOL Fiduciary Rule) sought to address. Specifically, Reg BI would require a broker-dealer to exercise reasonable “diligence, care, skill, and prudence” in making recommendations. These fiduciary principles are the core of a BD’s “Care Obligation” under proposed Reg BI.
  • Appropriately follows a principles-based, facts and circumstances approach; the contours of the “best interest” obligation are clearly delineated by the new and heightened care, disclosure and conflicts of interest obligations imposed by Reg BI.

SIFMA’s statement also outlines certain areas of Reg BI that should be modified or clarified to ensure the final rule will be workable for the industry and most effectively protect retail investors.

SIFMA’s full submission provides additional detail, which can be found here: