The Securities and Exchange Commission (SEC) has voted to implement a set of regulations designed to improve the quality and transparency of relationships between retail investors and their advisers.
The new rules will introduce additional legal requirements and mandated disclosures to ensure that investment advisers and broker-dealers fully disclose the variety and costs of their services and products.
The package of measures is comprised of two sets of regulations which fall under the Regulation Best Interest and Form CRS Relationship Summary rules, and also two separate interpretation documents to clarify any possible misunderstanding.
“The rules and interpretations we are adopting address issues that the Commission has been actively considering for nearly two decades,” said SEC chairman Jay Clayton.
“This rule making package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations, while simultaneously preserving retail investors’ access to a range of products and services at a reasonable cost.”
What is going to change
Under the new Regulation Best Interest, American broker-dealers will be required to act in a retail customer’s interest when recommending a securities transaction or an investment strategy involving securities.
The SEC said that it will also enhance the standards of conduct beyond the existing suitability obligations, and will also spell out that broker-dealers cannot put their interests before the clients’.
Under the Form CRS Relationship Summary it will become necessary for both investment advisers and broker-dealers to provide their clients with clear and easy-to-understand information about the nature of their relationship.
The additional interpretation documents are being put in place to clarify the SEC’s views on the fiduciary duty owed by investment advisers to their clients.
The documents also clarify a broker-dealer’s role when they become an investment adviser, though not much additional information was provided by the regulator on this matter.
Transitional period
The package of regulations will be effective 60 days after being published in the Federal Register – which the Commission has not provided the date for as of yet.
However, broker-dealers and investment advisers will have until 30 June 2020 to become comply with the two new sets of rules, since they might see cause changes in the way they operate.
In order to assist firms during the transition, the SEC has also established an inter-divisional standards of conduct implementation committee.
