Securities Litigation

Securities and Exchange Commission Chair Jay Clayton issued an April 2 public statement that the SEC will hold firm on its June 30, 2020 deadline for firms to implement Reg. BI and Form CRS.  There had been industry speculation that the SEC might push that compliance deadline back in the face of the COVID-19 pandemic.

Regulation Best Interest (“Reg. BI”) was adopted by the SEC last June in the wake of the turmoil from the Department of Labor’s “Fiduciary Rule” – a preemptive regulatory incursion into financial markets outside DOL’s usual “portfolio” that resulted in a spate of legal actions eventually striking down that regulation.  After its own years of the study, the SEC then adopted Reg. BI, which imposes a requirement that brokers recommending a transaction or investment strategy act in their customer’s “best interest” – with related disclosure obligations – but stopping short of a full fiduciary standard.  Form CRS is a required customer communication explaining the firm’s relationship with its customers and the standards that apply.  Chair Clayton did allow, however, that the SEC’s examination activities in the initial phase after the Rule’s implementation will focus upon firms’ “good-faith” efforts at compliance, considering the facts and circumstances.

Chair Clayton’s statement recounts other efforts by the SEC in response to the pandemic, including stepped-up enforcement and market monitoring, helping exchanges move to all-electronic trading, and providing disclosure guidance to public-companies and registrants.

Chair Clayton’s public statement is here.

The Reg. BI Adopting Release, No. 34-86031, is here.

The SEC’s FAQs are here.

FINRA’s Resource page (including its Reg. BI and Form CRS firm checklists) are 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.