Plaintiff asks court to strike down over-reaching, subjective, and impermissibly vague state regulations that require Missouri-specific disclosures that will confuse investors and violate federal law.

Washington, D.C., August 10, 2023 – The Securities Industry and Financial Markets Association (SIFMA) filed a federal court challenge to new Missouri documentation rules today.  The new rules, effective July 30, 2023, require financial firms and professionals that incorporate any “social objective or other nonfinancial objective” into their analysis to obtain their customers’ written consent on a state-written prescribed script.  “Social” or “nonfinancial” objectives may include multifaceted client objectives, such as tax considerations, diversification, risk tolerance, time horizon, liquidity needs, faith or values-based objectives, and local community investment objectives, among others.

The new rules require financial professionals in Missouri to create a highly prescriptive documentary record that none of the other forty-nine states require.  By doing so, the new rules directly conflict with a primary objective of the federal securities laws – namely, to create a uniform, consistent, regulatory regime across all fifty states, designed to enhance the efficiency of the U.S. capital markets and ensure the free flow of capital nationwide.

“U.S. capital markets are the bedrock of our nation’s economy.  They drive funds and human capital to the best ideas and the best enterprises.  They provide substantial benefits to individual investors, institutional investors, governments and corporations.  The national nature of our securities market system helps ensure that the U.S. has the deepest, most liquid markets in the world,” SIFMA’s President and CEO Kenneth E. Bentsen, Jr. observed.  “For that reason, in 1996, Congress passed the National Securities Markets Improvements Act (NSMIA) to, among other things, prevent states from adopting regulations that require financial professionals to create records ‘that differ from, or are in addition to’ those imposed by federal law.”

“NSMIA may be the acronym but let’s not lose sight of what it means,” Bentsen continued.  “The central purpose is enshrined in the name of the Act itself: ‘National Securities Markets Improvement.’  NSMIA improved the national securities markets by preempting states from imposing overlapping and conflicting regulatory responsibilities that could undermine the markets’ efficiency and effectiveness.  SIFMA has consistently supported NSMIA’s directive to ensure the efficiency, primacy, and preemptive effect, of federal securities laws.”

Notably, the new Missouri rules fill no void or blind spot that would protect Missouri investors today.  Under existing federal securities laws, broker-dealers and investment advisers are already required to provide investment advice that is in the best interest of their customers.  That means firms cannot put their interests ahead of their customers’ interests, and must base their advice on the customers’ individual investment objectives.  The Missouri rules are thus unnecessary and create confusion.

In its federal lawsuit, SIFMA asks the court to declare that Missouri, in promulgating its new rules, overstepped its boundaries in violation of both federal preemption statutes and federal constitutional requirements.  This lawsuit is necessary to prevent Missouri from both violating federal law, and potentially harming Missouri investors and the financial professionals and firms in Missouri who today serve their customers’ best interests.

The complaint can be found here:  https://www.sifma.org/resources/submissions/complaint-filed-in-the-u-s-district-court-for-the-state-of-missouri/

-30-

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).