{ "id": "R46115", "type": "CRS Report", "typeId": "REPORTS", "number": "R46115", "active": true, "source": "EveryCRSReport.com", "versions": [ { "source": "EveryCRSReport.com", "id": 615438, "date": "2020-01-30", "retrieved": "2020-01-30T23:01:23.979532", "title": "Regulation Best Interest (Reg BI): The SEC\u2019s Rule for Broker-Dealers", "summary": "On June 5, 2019, the Securities and Exchange Commission (SEC) voted to adopt Regulation Best Interest (Reg BI) under the Securities and Exchange Act of 1934 (P.L. 73-291). Reg BI reforms requirements for broker-dealers when they make investment recommendations to retail customers. According to the SEC, Reg BI is meant to \u201cenhance the broker-dealer standard of conduct beyond existing ... obligations [by] requiring broker-dealers ... to: (1) act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer; and (2) address [various broker-dealer] conflicts of interest [with those clients].\u201d Broker-dealers have until June 2020 to comply.\nBroker-dealers execute securities trades and provide investment recommendations. They are licensed and regulated by state securities regulators, the SEC, and the Financial Industry Regulatory Authority (FINRA), a SEC-regulated entity that they must also join. Traditionally, broker-dealers provided transaction-specific discrete investment recommendations and were compensated via commissions for individual transactions. \nBroker-dealers have generally made investment recommendations under the suitability standard, a FINRA rule requiring that recommendations are merely consistent with customers\u2019 interests. By contrast, investment advisers\u2014another type of financial professional that typically offers more ongoing investment counsel (such as retirement planning) and is compensated by fixed fees or a percentage of total assets managed\u2014have generally followed the fiduciary standard, a nonstatutory obligation derived from court rulings and decisions from SEC enforcement cases. It requires a more demanding level of financial professional client care than does broker-dealers\u2019 suitability standard: advisers are expected to serve their clients\u2019 best interests above their own. \nPartly motivated by reporting on widespread investor confusion over the differences between broker-dealers and investment advisers and their respective client obligations, Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank, P.L. 111-203) directed the SEC to evaluate gaps in existing regulations for advisers and broker-dealers. It gave the SEC authority to impose a fiduciary standard of care on broker-dealers akin to that already applied to advisers. Dodd-Frank also required the SEC to study this issue. The resulting 2011 staff study recommended that the SEC adopt a uniform fiduciary standard. \nIn 2016, the Obama Administration\u2019s Department of Labor (DOL) issued controversial regulations that subjected financial professionals who work with private-sector retirement plans governed by the Employee Retirement Income Security Act of 1974 (P.L. 93-406) to an elevated fiduciary level of customer duty. The largely unimplemented reform, which earned praise from investor advocates, was vacated in a 2018 court case brought by various business interests who successfully argued that it was statutory overreach. Currently, Trump Administration DOL officials are reportedly working on a new standard projected to align with Reg BI.\nSEC officials and various business groups argue that Reg BI properly balances the need for an enhanced broker-dealer standard of care with the need to preserve the broker-dealer business model, a model deemed to have special appeal to less-affluent investors. Critics, including investor advocates, argue that it effectively preserves the inadequate suitability standard, exposing investors to harm from unaddressed broker-dealer conflicts of interest. In June 2019, the House passed H.R. 3351, the FY2020 Financial Services and General Government appropriations bill. It included an amendment sponsored by House Financial Services Committee Chair Maxine Waters that would have forbidden the SEC from using any of its congressional spending authority to implement, administer, enforce, or publicize the final rules and interpretations with respect to Reg BI. On December 20, 2019, President Trump signed H.R. 1865, the Further Consolidated Appropriations Act, 2020, which became P.L. 116-94 and will fund the federal government through FY2020. It does not contain the aforementioned SEC restrictions contained in H.R. 3351.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R46115", "sha1": "1f1298110051731114e5dbdff0ff0f2c24ecef1e", "filename": "files/20200130_R46115_1f1298110051731114e5dbdff0ff0f2c24ecef1e.html", "images": {} }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R46115", "sha1": "5c0e9133286f7a57566a905d345008ffa92c0343", "filename": "files/20200130_R46115_5c0e9133286f7a57566a905d345008ffa92c0343.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4899, "name": "Securities" } ] }, { "source": "EveryCRSReport.com", "id": 611070, "date": "2019-12-12", "retrieved": "2019-12-13T14:58:04.312463", "title": "Regulation Best Interest (Reg BI): The SEC\u2019s Rule for Broker-Dealers", "summary": "On June 5, 2019, the Securities and Exchange Commission (SEC) voted to adopt Regulation Best Interest (Reg BI) under the Securities and Exchange Act of 1934 (P.L. 73-291). Reg BI reforms requirements for broker-dealers when they make investment recommendations to retail customers. According to the SEC, Reg BI is meant to \u201cenhance the broker-dealer standard of conduct beyond existing ... obligations [by] requiring broker-dealers ... to: (1) act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other interest of the broker-dealer ahead of the interests of the retail customer; and (2) address [various broker-dealer] conflicts of interest [with those clients].\u201d Broker-dealers have until June 2020 to comply.\nBroker-dealers execute securities trades and provide investment recommendations. They are licensed and regulated by state securities regulators, the SEC, and the Financial Industry Regulatory Authority (FINRA), a SEC-regulated entity that they must also join. Traditionally, broker-dealers provided transaction-specific discrete investment recommendations and were compensated via commissions for individual transactions. \nBroker-dealers have generally made investment recommendations under the suitability standard, a FINRA rule requiring that recommendations are merely consistent with customers\u2019 interests. By contrast, investment advisers\u2014another type of financial professional that typically offers more ongoing investment counsel (such as retirement planning) and is compensated by fixed fees or a percentage of total assets managed\u2014have generally followed the fiduciary standard, a nonstatutory obligation derived from court rulings and decisions from SEC enforcement cases. It requires a more demanding level of financial professional client care than does broker-dealers\u2019 suitability standard: advisers are expected to serve their clients\u2019 best interests above their own. \nPartly motivated by reporting on widespread investor confusion over the differences between broker-dealers and investment advisers and their respective client obligations, Section 913 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank, P.L. 111-203) directed the SEC to evaluate gaps in existing regulations for advisers and broker-dealers. It gave the SEC authority to impose a fiduciary standard of care on broker-dealers akin to that already applied to advisers. Dodd-Frank also required the SEC to study this issue. The resulting 2011 staff study recommended that the SEC adopt a uniform fiduciary standard. \nIn 2016, the Obama Administration\u2019s Department of Labor (DOL) issued controversial regulations that subjected financial professionals who work with private-sector retirement plans governed by the Employee Retirement Income Security Act of 1974 (P.L. 93-406) to an elevated fiduciary level of customer duty. The largely unimplemented reform, which earned praise from investor advocates, was vacated in a 2018 court case brought by various business interests who successfully argued that it was statutory overreach. Currently, Trump Administration DOL officials are reportedly working on a new standard projected to align with Reg BI.\nSEC officials and various business groups argue that Reg BI properly balances the need for an enhanced broker-dealer standard of care with the need to preserve the broker-dealer business model, a model deemed to have special appeal to less-affluent investors. Critics, including investor advocates, argue that it effectively preserves the inadequate suitability standard, exposing investors to harm from unaddressed broker-dealer conflicts of interest. In June 2019, the House passed H.R. 3351, the FY2020 Financial Services and General Government appropriations bill. It included an amendment sponsored by House Financial Services Committee Chair Maxine Waters that would forbid the SEC from using any of its congressional spending authority to implement, administer, enforce, or publicize the final rules and interpretations with respect to Reg BI. In September 2019, the Senate Appropriations Committee reported its version, S. 2524, which would not proscribe funding for SEC implementation of Reg BI. In late November 2019, H.R. 3055 was passed by the House and the Senate as a continuing resolution that would fund the government at current levels through December 20, 2019. On November 21, President Trump signed it into law as P.L. 116-69. It does not restrict agency funding for Reg BI implementation.", "type": "CRS Report", "typeId": "REPORTS", "active": true, "formats": [ { "format": "HTML", "encoding": "utf-8", "url": "https://www.crs.gov/Reports/R46115", "sha1": "d8bfa289383f26a69d3e25ae6ba33fae3f0fe186", "filename": "files/20191212_R46115_d8bfa289383f26a69d3e25ae6ba33fae3f0fe186.html", "images": {} }, { "format": "PDF", "encoding": null, "url": "https://www.crs.gov/Reports/pdf/R46115", "sha1": "d92ec2641324ef6bc6e0c4cd2be8b8fba091a6d0", "filename": "files/20191212_R46115_d92ec2641324ef6bc6e0c4cd2be8b8fba091a6d0.pdf", "images": {} } ], "topics": [ { "source": "IBCList", "id": 4899, "name": "Securities" } ] } ], "topics": [ "Appropriations", "Domestic Social Policy", "Economic Policy" ] }