The U.S. Securities and Exchange Commission (SEC) approved new rules today that, among other things, require broker-dealers to act in their clients’ best interests.
At its meeting in Washington, D.C., on Wednesday, the SEC voted to adopt a package of reforms that aim to enhance the quality and transparency of brokers’ relationships with their clients.
The reforms include “Regulation Best Interest,” which will require broker-dealers to “act in the best interest of a retail customer” when recommending a transaction or an investment strategy.
“Regulation Best Interest will enhance the broker-dealer standard of conduct beyond existing suitability obligations and make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer when making recommendations,” the SEC said today.
The reforms also feature new relationship disclosure requirements for both registered investment advisors and broker-dealers; measures to clarify investment advisers’ fiduciary duty; and measures to clarify when a broker-dealer’s advisory activities cause the broker-dealer to become an investment adviser under the securities rules.
SEC chairman Jay Clayton said he believes the reforms “will benefit retail investors and our markets for years to come.”
Clayton added: “This rulemaking package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations while simultaneously preserving retail investors’ access to a range of products and services at a reasonable cost.”
During a long-running consultation process in the U.S., industry groups have generally favoured the SEC’s approach, whereas investor advocates have called for brokers to be subject to tougher fiduciary standards.
Last year, the Canadian Securities Administrators (CSA) proposed its own series of reforms — known as the client-focused reforms — which would, among other things, incorporate “best interest” principles into existing rules, such as KYC requirements, suitability obligations and conflict-of-interest rules.
The consultation on the CSA’s proposals wrapped up last fall, and regulators have indicated that revised proposals will be released some time this fiscal year (ending March 31, 2020).
The SEC’s new rules take effect 60 days after they are published in the Federal Register, and will be subject to a transition period until June 30, 2020.
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