RumbergerKirk’s Pete Tepley and Meredith Lees highlight litigation risks posed by the SEC’s Regulation Best Interest (Reg-BI), litigation risks that may arise from Reg-BI’s care and compliance obligations and best practices to mitigate those risks.
By looking beyond Reg-BI’s June 30, 2020 compliance date to some of the litigation risks posed by Reg-BI, this article addresses:
- The possible litigation risks Reg-BI poses to broker-dealers and their associated persons;
- whether new damages are available to customers under Reg-BI; and
- strategies to mitigate the litigation risks.
Overview of Reg-BI
Reg-BI imposes a general obligation that is only satisfied when each of four component obligations are met: (1) the disclosure obligation, (2) the care obligation; (3) the conflict of interest obligation and (4) the compliance obligation.[1]
The General Best Interest Obligation
The general or “best interest” obligation states:
(1) A broker, dealer or a natural person who is an associated person of a broker or dealer, when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer, shall act in the best interest of the retail customer at the time the recommendation is made, without placing the financial or other…
