Reg BI “is just the latest in a series of attempts by the SEC to
exceed or misapply its regulatory authority," XYPN said.
Attorneys for XY
Planning Network on Tuesday ripped into the Securities and Exchange
Commission’s Regulation Best Interest in a brief before the U.S. Court of
Appeals for the 2nd Circuit.
XYPN attorneys said in the brief that the
“fundamental purpose” of Securities and Exchange Commission’s Regulation Best
Interest is “to carve up the market for investment advice and introduce new
standards to govern the actions and disclosures of broker-dealers as distinct
from registered investment advisors.”
In their 38-page reply brief to the SEC’s March 3
response brief, XYPN attorneys from Gupta Wessler argue that Reg BI is
“premised on an unreasonable understanding of the activities and laws
separating” advisors and broker-dealers.
The result, XYPN maintains, “is that entire
businesses will be subject to Regulation Best Interest as broker-dealers when
they should be regulated as investment advisers. The regulation therefore
‘cannot stand as promulgated.’”
In its response brief, SEC attorneys argued that Reg BI should stand because
it “reasonably balances” the SEC’s regulatory objective, and reflects the
agency’s concern that “requiring broker-dealers to conform to a regulatory
regime that is tailored to the services and fee arrangements offered by
investment advisors would reduce the availability of brokerage services.”
But XYPN argues in its Tuesday brief that Reg
BI “is just the latest in a series of attempts by the SEC to exceed or misapply
its regulatory authority in ways that have required judicial scrutiny.”
“In this latest round” with Reg BI, “the SEC
has written a rule that cannot be squared with the plain text of the Dodd-Frank
Act, has ignored evidence from its own empirical studies, and has even
contradicted its own past interpretations of the Investment Advisers Act,” XYPN
asserts.
The SEC’s March 3 response brief “fails to
rebut these problems, invoking rationales that were not relied on in Regulation
Best Interest itself, contradicting the SEC’s own past stances, relying on
novel misinterpretations of Dodd-Frank.”
The SEC’s interpretation of the Dodd-Frank Act
“is critically flawed,” XYPN says. “The law requires that if the SEC issues a
regulation governing the standard of care for broker-dealers’ provision of
personalized investment advice, it must hold broker-dealers to the same standard
as investment advisers.”
XYPN’s lawsuit against Reg BI has been
consolidated with the suit filed against the rule by seven state attorneys
general.
In their reply brief, also filed Tuesday, the
state Attorneys General of New York, California, Connecticut,
Delaware, Maine, New Mexico, Oregon and the District of Columbia, claim that
the SEC’s “statutory arguments rely on its startling and illogical view that
Congress enacted Section 913 of the Dodd-Frank Act specifically to address the
problems caused by divergent standards of conduct for functionally identical
investment advice—but then was entirely indifferent to whatever rule the
Commission chose to promulgate.”
The text and purpose of Section 913
“demonstrate otherwise,” the state AGs said in their 48-page brief. “Congress was deeply concerned
that broker-dealers were providing conflicted investment advice to retail
investors and sought to curb that practice by requiring broker-dealers to
adhere to the same fiduciary standard that had applied to investment advisers
for decades.”
Melanie Waddell is Washington Bureau Chief, Investment
Advisory Group. She also covers regulatory and compliance issues. Her column,
The Playing Field, appears in Investment Advisor and on
ThinkAdvisor.com, and she also writes the briefing and produces the podcast,
Human Capital. Earlier in her career, Melanie covered financial issues at
American Banker/Thomson Media publications in Washington and New York. You can
reach her at mwaddell@alm.com. On twitter: @Think_MelanieW
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