The Sec’s Proposed “Regulation Best Interest” Won’t Protect Investors Says Sec Commissioner

On April 18, the Securities and Exchange Commission proposed a package of reforms intended to protect investors from broker-dealer conflicts of interest.  But the reforms won’t protect investors lamented SEC Commissioner Kara Stein at the SEC’s most recent open meeting: “one might say, the Emperor has no clothes.”  Among the reforms, proposed Regulation Best Interest disappointed her the most.

The SEC designed Regulation Best Interest to make it clear that a broker-dealer may not put its financial interests ahead of the interests of a retail customer in making investment recommendations. To that end, the proposed regulation would hold brokers to a new “best interest” standard.  But as Stein pointed out, the proposed reforms don’t define the new standard.  Instead, they allow broker-dealers to satisfy their obligations to investors with esoteric disclosures and policies. So rather than protecting investors, Regulation Best Interest and the other reforms would provide broker-dealers with a road map around liability.  Or as Stein put it: proposed Regulation Best Interest fails to “provide comprehensive reform or adequately enhance existing rules.  Perhaps it would have been more accurate to call it ‘Regulation Status Quo.’”

About Faruqi & Faruqi, LLP

Faruqi & Faruqi focuses on complex civil litigation, including securities, shareholder derivative actions, merger litigation, antitrust, employment law, wage and hour, and consumer class actions.  The firm is headquartered in New York, and maintains offices in Delaware, Pennsylvania, California, and Georgia.

Since its founding in 1995, Faruqi & Faruqi has served as lead or co-lead counsel in numerous high-profile cases which ultimately provided significant recoveries to investors, consumers and employees.

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About Nicholas Stockton

Nicholas Stockton’s practice is focused on securities litigation.  Nicholas is an associate in the firm’s New York office.

Posted by Nicholas P. Stockton

Associate at Faruqi & Faruqi, LLP
New York Office
Tel: (212) 983-9330
Fax: (212) 983-9331
Email: nstockton@faruqilaw.com
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