Washington, D.C., December 1, 2023 – SIFMA submitted a comment letter today to the North American Securities Administrators Association, Inc. (NASAA) on proposed revisions to NASAA’s model rule related to business practices of broker-dealers.

“NASAA’s proposed changes would fundamentally rewrite the existing regulatory regime, including Reg BI, under which broker-dealers provide services to investors. There is a growing consensus that Reg BI is increasingly well-functioning and effective in protecting investors after more than three-years of closely-watched regulatory examinations, enforcement actions, and an ever-growing body of regulatory guidance.” Kevin M. Carroll, Deputy General Counsel of SIFMA wrote in the letter. “NASAA itself concedes that broker-dealer firms have demonstrated ‘helpful and steady implementation progress’ as they have ‘update[ed] their investor profile forms and enhance[ed] their policies and procedures to focus more directly on Reg BI obligations.’”

“The regulatory rewrite contemplated by the proposal would not only directly conflict with Reg BI, but also undermine the regulatory regime’s future development and progress,” the letter continued. “In doing so, the proposal would negatively impact retail investors and undercut the primary objective of Reg BI, namely, to preserve investor choice among brokerage products and services, and to preserve investor access to full-service and self-directed brokerage and investment advisory accounts. The proposal would likewise increase costs and uncertainty for investors, given the breadth and vagueness of its requirements.”

The letter recommends that NASAA withdraw the proposal because, among other things, it directly conflicts with Reg BI in three major respects:

1. the redefinition of what constitutes a “recommendation”;
2. the rewriting of the Conflicts of Interest Obligation under Reg BI; and
3. the treatment of “cash or non-cash compensation.”

It also directly conflicts with Reg BI in five other respects:

1. the expansion of customer profile information;
2. the misstatement of the “reasonably available alternatives” obligation;
3. the treatment of “costs;”
4. the inconsistent definition of “retail customer;” and
5. the titling provision.

Consequently, the proposal is also in large part federally preempted under both NSMIA and Reg BI.

The foregoing conflicts would negatively impact retail investors by limiting their choice of brokerage products and services and reducing their access to brokerage accounts, including self-directed brokerage accounts.

In its letter, SIFMA also urges NASAA not to invite states to adopt “one, some, or all” of the subparts of its proposal. Doing so would likely result in an uneven patchwork of different standards across the fifty states. The corresponding negative impacts to retail investors may include greater cost, less choice, and confusion over what “best interest” standard they are owed in any given state.

The full comment letter expands on these views and can be found here.

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SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On behalf of our industry’s one million employees, we advocate on legislation, regulation and business policy affecting retail and institutional investors, equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets, informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).