The proposals are “the SEC’s first real foray into the BD space,” said James Lundy, a partner with Drinker Biddle and former SEC litigator. “They’re putting the best-interest rule in place under SEC statutes, which allows the SEC to play a much bigger role in BDs’ interactions with retail investors.” In fact, the SEC has codified Finra’s entire suitability requirement into “Regulation Best Interest” proposal to appease economic concerns and ensure that they are able to successfully battle any legal challenges from the B-D industry, Lundy said.
Many of the SEC senior staff who wrote the new proposals have memories of the FPA’s successful legal challenge to the agency’s last attempt at broker-dealer sales standards in 2007.
“There was a bit of sensitivity going into this proposal from that perspective,” Lundy added. “Many senior staff remember that lawsuit. Underlying all of this is the goal to have a rule that will be workable for industry and investors and be affirmed if challenged in court.”