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June 20, 2019

SEC Adopts Regulation Best Interest

The Securities and Exchange Commission recently adopted a new regulation that calls for brokers-dealers to act in the best interest of their retail clients.

By Lisa Shea, Manager, Fund Governance Solutions

Market Trends: SEC Adopts Regulation Best Interest

On Wednesday, June 5, the Securities and Exchange Commission voted to adopt Regulation Best Interest (Reg BI), a new rule that goes beyond current suitability standards by requiring broker-dealers to act in the best interest of their retail customers and to put the interests of the customer ahead of their own financial interests. The 771-page adopting release discusses component obligations of Disclosure, Care, Conflict of Interest and Compliance, each of which are necessary to meet the General Obligation. Reg BI will become effective 60 days following the publication of the rule in the Federal Register, and includes a transition period until June 30, 2020 for compliance.

Also adopted was the new Form CRS Relationship Summary, which requires registered investment advisers and broker-dealers to provide customers with “simple, easy-to-understand information about the nature of their relationship with their financial professional.” The 524-page adopting release outlines requirements for the length, format and standardized headings to be used in the form, as well as changes to Form ADV, which will now include a “Part 3” related to the Relationship Summary. Like Reg BI, the rule allows for a transition period until June 30, 2020 for compliance.

Concurrently, the SEC also issued two interpretations regarding the “solely incidental” prong of the broker-dealer exclusion under the Investment Adviser’s Act of 1940, and standards of conduct/fiduciary duty of Advisers under the Act. Both interpretations, issued to address many of the questions raised during the public comment period, will be effective upon publication to the Federal Register.

Additional information and the full text of the adopting releases and interpretations can be found on the SEC’s website.

Lisa Shea portrait

Lisa Shea

Manager, Fund Governance Solutions
Lisa Shea is a Senior Vice President and Manager in Northern Trust’s North American Fund Governance Solutions group. Lisa focuses on supporting asset manager clients in regulatory and distribution matters. With over 20 years' experience working with various registered and unregistered fund structures, Lisa’s practical knowledge of how US funds are governed, sold and serviced provides clients with consultative support to help them navigate the evolving marketplace. Lisa joined Northern Trust in 2001.
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