June 18, 2019

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Will Regulation "Best Interest" Preempt State Law?

Yesterday's post concerned possible arguments that federal law preempts Nevada's fiduciary standard for broker-dealers.  At present, any preemption would have to be based on the National Securities Markets Improvement Act and/or the Dodd-Frank Act.  Would the situation change if the Securities and Exchange Commission adopts its proposed "best interest" standard?

It should surprise no one that the NASAA, an association of state securities administrators, opposes preemption.  In commenting on the SEC's proposal, the NASAA makes the following points:

  • The SEC's proposal does not evidence an intent to affect broker-dealer duties under state law;
  • Congress intended only limited preemption of state broker-dealer laws;
  • There is no conflict of state and federal law because the SEC's proposed rule aligns with state law.

Nonetheless, the NASAA implores the SEC to include an express disavowal of any intent to preempt state law in its adopting release.  If the SEC should instead avow an intention to preempt, that would not necessarily settle the issue.  When a federal agency asserts that regulations preempt on an implied basis, the agency bears the burden of proving that Congress intended that the law under which the regulation was adopted would preempt state law.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...