December 1, 2023

Via E-Mail to:
[email protected], [email protected] and
[email protected]
North American Securities Administrators Association, Inc. (NASAA)
Attn: Amy Kopleton, Group Chair, Broker-Dealer Market and Regulatory Policy and Review
Project, and James Nix, Chair, Broker-Dealer Section 750 First Street, N.E., Suite 990 Washington, D.C. 20002

Re: SIFMA Comment on Proposed Revisions to NASAA’s Dishonest Or Unethical Business Practices of Broker-Dealers Model Rule

Dear NASAA, Ms. Kopleton, and Mr. Nix:

The Securities Industry and Financial Markets Association (“SIFMA”)1 appreciates the opportunity to comment on the North American Securities Administrators Association, Inc. (“NASAA”) proposed revisions to its “Dishonest or Unethical Business Practices of Broker-Dealers and Agents” (the “Proposal”).2 We respectfully submit the following comments and recommendations for your consideration.

The Proposal’s stated purpose is to incorporate the SEC’s Regulation Best Interest (“Reg BI”), including the SEC’s related interpretive guidance on Reg BI, into NASAA’s broker-dealer model rule. The Proposal’s language and effect, however, diverge significantly from Reg BI. In practice, NASAA’s proposed language changes would fundamentally rewrite the existing regulatory regime, including Reg BI, under which broker-dealers provide services to investors.3

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.4 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.”5

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. 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, as discussed below.

To the extent NASAA believes it is necessary to augment the existing regulatory regime, our industry stands ready to engage constructively with you to address your concerns in an appropriately targeted manner. In this regard, we note that historically, NASAA has expressed concerns with certain complex products.6 In the Proposal, NASAA also expresses concerns with emerging technologies and firms’ digital engagement practices.7 Assuming complex products and new technologies are the primary concerns, we believe the Proposal should be set aside in favor of exploring a more narrowly tailored approach to address these specific concerns.

NASAA should also ensure that any of its model rule amendments are closely coordinated and aligned with the actions of federal regulators, particularly the SEC and the Department of Labor (“DOL”). Regulatory alignment and consistency reduce investor confusion and foster investor protection. The DOL just recently proposed a new rule governing fiduciary advice to retirement accounts.8 Meanwhile, the SEC is currently vacillating between two arguably competing approaches to firms’ digital engagement practices and predictive data analytics.9 NASAA should allow these two major developments to play out to conclusion prior to drafting new rules that may ultimately prove to be misaligned and/or inconsistent with those efforts.

Finally, on the same theme that regulatory consistency fosters investor protection, we urge NASAA not to invite states to adopt “one, some, or all” of the subparts of the Proposal.10 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.

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1 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 nearly 1 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. For more information, visit http://www.sifma.org.
2 https://www.nasaa.org/wp-content/uploads/2023/09/Request-for-Public-Comment-on-BD-Best-Interest-Model-Rule.pdf.
3 See Appendix 2, prepared by A. Valerie Mirko, Armstrong Teasdale LLP, for a side-by-side comparison of the numerous, significant differences between the Proposal and Reg BI.
4 See, e.g., FINRA Highlights Firm Practices from Regulation Best Interest Preparedness Reviews (Feb. 2023),
https://www.finra.org/rules-guidance/key-topics/regulation-best-interest/preparedness.
5 NASAA National Exam Initiative Phase II (B) Report (Sept. 2023) (“NASAA Report”) at pp. 3-4,
https://www.nasaa.org/wp-content/uploads/2023/08/Reg-BI-Phase-II-B-Report-Formatted-8.29.23.pdf.
6 See NASAA Report at pp. 4-8.
7 Preamble to Proposal at pp. 6-7 and fn 14.
8 DOL Proposed Retirement Security Rule (Oct. 24, 2023), https://www.dol.gov/sites/dolgov/files/ebsa/temporarypostings/retirement-security-rule-definition-of-an-investment-advice-fiduciary.pdf.
9 See discussion Part I.1.b. infra.
10 See discussion Part V. infra.