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The SEC’s Reg BI Package: Time to Vote

On May 23, 2019, the SEC released its Open Meeting Agenda for June 5, 2019, at 10:00 a.m. EST. More than a typical SEC agenda release, this advised that at this meeting the SEC will consider whether to adopt the package that was proposed April 18, 2018, to attempt to reform retail investment standards.

The agenda includes four items. The first three to be considered for adoption are familiar:

  • Item 1: Regulation Best Interest – Standard of Conduct for Broker-Dealers
  • Item 2: Form CRS Relationship Summary
  • Item 3: Standard of Conduct for Investment Advisers.

The fourth item—Interpretation of “Solely Incidental”—was not part of the April 18, 2018, proposals and therefore was not put out for comment. This new agenda item references Section 202(a)(11)(C) of the Investment Advisers Act of 1940. The reference to this provision involves a potential registration exemption for broker-dealers if their advice is “solely incidental” to the conduct of their business as a broker-dealer, and they do not receive special compensation for this advice. Investor advocacy groups have already expressed reservations alleging that this addition to the agenda was unanticipated. Industry groups have countered that this topic was embedded in the proposing releases and was the subject of comment letters.

Turning back to April 18, 2018, many will recall that Commissioner Kara Stein was the sole vote against the package, and in doing so she offered a scathing dissent. She has since left the Commission. Commissioner Robert Jackson voted for the package, but has raised certain concerns in his public statements at that open meeting and since. Ironically, his term expires June 5. While he can extend his term for another 18 months, it is expected that he will leave the Commission sooner than that. Thus, for a variety of reasons, Commissioner Jackson’s comments and vote will warrant close attention. The SEC is putting forth this rulemaking package with only four Commissioners—a less than “full Commission”—including one who may be leaving soon. That said, close followers of the developments regarding this package of proposals understand that Chairman Jay Clayton would not have set this agenda unless he anticipated obtaining the votes that he needs for passage.

© 2020 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume IX, Number 149


About this Author

Joshua B. Deringer, Investment Management, Attorney, Drinker Biddle, Law firm

Joshua B. Deringer counsels a wide range of national and international financial service companies involved in all aspects of the investment management industry, including registered investment companies, hedge funds and other alternative investment vehicles, as well as investment advisers. He is chair of the Investment Management Practice Group and a managing partner of the firm.

Josh has extensive experience in organizing, counseling and reorganizing open- and closed-end investment companies. His clients include multi-series...

Sandra Dawn Grannum, Finance, Securities Lawyer, Drinker Biddle Law Firm

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has tried more than 50 arbitrations before the NASD and FINRA through award represented brokerage firms, banks, clearing firms, and associated persons. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

James G. Lundy, Drinker Biddle, regulatory investigations lawyer, financial services compliance attorney

James G. Lundy represents clients in Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), self-regulatory organization, and other financial regulatory agency investigations and examinations, and compliance and governance counseling, white collar criminal investigations, and complex business litigation.

With 12 years of senior SEC experience and more than two years of in-house experience at a futures and securities brokerage firm, Jim has developed an in-depth working knowledge of the various...

Fred Reish, Drinker Biddle Law Firm, Los Angeles, Labor and Employment Law Attorney

Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.

Fred works with both private and public sector entities and their plans and fiduciaries and represents plans, employers and fiduciaries before federal agencies such as the DOL and IRS. He consults with banks, trust companies, insurance companies and mutual fund management companies on 401(k) recordkeeping services, investment products and...

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