US Appeals Court Upholds Reg BI

The 2nd U.S. Circuit Court of Appeals ruled that the Securities and Exchange Commission acted properly in developing Regulation Best Interest and that the rule was not arbitrary and capricious.

The court’s decision on Friday means that Reg BI, which establishes a new advice standard for brokers, can take effect as planned on Tuesday.

Seven states, the District of Columbia, the XY Planning Network, and XYPN member Ford Financial Solutions filed suit against the SEC in September, claiming that the SEC had ignored a provision of the Dodd-Frank Act that said regulators should create a fiduciary standard for broker-dealers that is no less stringent than the one for registered investment advisors.

Reg BI requires brokers to act in clients’ best interests and is a step up from the current “suitability” standard. However, it differs from the fiduciary standard that applies to RIAs.

“Section 913(f) of the Dodd-Frank Act grants the SEC broad rulemaking authority, and Regulation Best Interest clearly falls within the discretion granted to the SEC by Congress,” Judge Michael H. Park wrote. “Although Regulation Best Interest may not be the policy that petitioners would have preferred, it is what the SEC chose after a reasoned and lawful rulemaking process.”