On June 5, 2019, the United States Securities Exchange Commission (SEC) adopted its Regulation Best Interest: The Broker-Dealer Standard of Conduct (the Best Interest Regulation), establishing a standard of code of conduct for broker-dealers when they make recommendations to a retail customer regarding a securities transaction or investment strategy.
The Best Interest Regulation takes the broker-dealer standard of conduct beyond existing suitability obligations and requires them to act in the “best interest” of the retail customer, without putting its financial interest ahead of its clients. The regulation also requires broker-dealers to address conflicts of interest “by establishing, maintaining, and enforcing policies and procedures reasonably designed to identify and fully and fairly disclose material facts about conflicts of interest”, and to mitigate or eliminate the conflict in circumstances where disclosure is insufficient to address the conflict.
The SEC will also require broker-dealers and investment advisers provide a client relationship summary to retail investors, which provides user-friendly information about the nature of their professional relationship. This summary is meant to highlight the key differences between broker-dealers and investment advisers and the services offered.
It remains to be seen whether Canadian regulators will introduce a similar standard to govern management of conflicts of interest in the Canadian financial industry.
You can obtain a copy of the Best Interest Regulation here.
DISCLAIMER: This post is intended to convey general information about legal issues and developments as of the date above. It does not constitute legal advice and must not be treated or relied on as such.