Securities Litigation

Effective June 30, SEC Reg. BI requires broker-dealers to make recommendations only in the “best interests” of retail customers, imposing additional disclosure, care, conflicts-of-interest and compliance obligations.  The disclosure obligations include dissemination of Form CRS educating customers on the nature of their relationship with the firm.

FINRA Regulatory Notice 20-18, issued June 19, makes corresponding changes to its Rules stressing the primacy of Reg. BI with respect to retail customers:

Capital Acquisition Brokers’ suitability (Rule 211).

Suitability (Rule 2111), but noting that FINRA’s prior suitability rule continues to apply to other client relationships not involving clients who are natural persons and involving personal, family or household finances.  The prior rule will apply, for example, to institutional or entity clients, and persons acting for trusts, estates, or small business.

Non-cash compensation rules for direct participations (Rule 2310), variable annuities (Rule 2320), investment company securities (Rule 2341) and corporate underwriting (Rule 5110).

The Regulatory Notice is here.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 34 years of experience representing financial institutions in litigation, regulatory, and compliance matters. See attorney profile.