Los Angeles partner Fred Reish was quoted in the NAPA.net article “Legal Experts See Long Road Ahead for SEC Proposals.” The article discusses the Securities and Exchange Commission’s proposals to establish new standards of conduct for broker-dealers and investment advisers.
Fred notes that the proposals, despite being nearly 1,000 pages, are “surprisingly incomplete,” adding that this is particularly true of the Regulation Best Interest and the Customer Relationship Summaries. “I don’t know why they weren’t further developed before being issued, unless the SEC rushed to get the proposals out the door,” Fred said.
Fred explains that the Regulation Best Interest proposal has a specific section that compares the proposal to the DOL transition rule under the Best Interest Contract Exemption (BICE). While the rules are very similar, Fred explains that the consequences of a violation will be slightly different: “A violation of the DOL’s BICE will be both a prohibited transaction and a breach of fiduciary duty or, more technically, a breach of the best interest standard of care.” But a key difference, Fred added, is that a breach of the SEC’s best interest standard would not create a private right of action, meaning that an investor cannot file a claim for a violation. In other words, only the SEC or FINRA could enforce the standard, but it’s possible that FINRA could allow arbitration claims to be filed, Fred said.