Document Type
Article
Publication Title
PIABA Bar Journal
Publication Date
2022
Volume
39
First Page
297
Abstract
(Excerpt)
On June 5, 2019, the SEC adopted the Regulation Best Interest Rule Package, consisting of (i) Regulation Best Interest: The Broker-Dealer Standard of Conduct (“Reg. BI”); (ii) Form CRS Relationship Summary and Amendments to Form ADV;(iii) the SEC Interpretation Regarding Standard of Conduct for Investment Advisers; and (iv) the SEC Interpretation Regarding the “Solely Incidental” Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser. Brokers were obligated to begin compliance with Reg. BI as of June 30, 2020.
Reg. BI contains four component sections mandating duties for brokers and firms: Disclosure, Care, Conflicts of Interest, and Compliance. While it is the SEC's position that Reg. BI does not create any new private right of action or right of rescission, the Rule does set forth duties to which brokers and firms must adhere. Therefore, these obligations may be used as support for a negligence claim for (i) a recommendation that is not in the investor’s best interests; or (ii) failure to supervise. While this article will address how to assess the various Reg. BI obligations when pleading and advancing a potential negligence claim in FINRA arbitration, such conduct may also support other claims such as breach of contract, negligent or intentional misrepresentation, and state Blue Sky law violations.
Comments
Available at: https://piaba.org/piaba-bar-journal/piaba-bj-vol-29-no-3-2022
Reprinted with the permission of Public Investors Arbitration Bar Association (PIABA). Christine Lazaro & Michael S. Edmiston, Pleading and Advocating a Negligence Claim through the Regulation Best Interest Lens, PIABA B.J., Vol 29, No. 3 (2022).