The Attorneys General of seven states – New York, California, Connecticut, Delaware, Maine, New Mexico, Oregon – and the District of Columbia – filed a lawsuit in the Southern District of New York (SDNY) on September 9, 2019, requesting that Regulation Best Interest be invalidated. The states argue that the SEC did not exactly follow the mandate of the Dodd-Frank Wall Street Reform and Consumer Protection Act in that Regulation Best Interest does not harmonize the standard of conduct between broker-dealers and registered investment advisers ("RIAs"). RIAs are under a fiduciary duty to act in their clients' best interest at all times, while broker-dealers, under Regulation Best Interest, are required to act in the best interest of their retail customers when recommending an investment strategy.

The states claim that Regulation Best Interest is arbitrary and capricious. It remains to be seen how the SDNY will respond, and whether the plaintiffs have standing to sue. Some commentators have questioned the purpose of the lawsuit, because if Regulation Best Interest is invalidated, broker-dealers will face continued uncertainty.


Originally published in REVERSEinquiries: Volume 2, Issue 9.
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