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Regulation and Compliance > State Regulation

Let Reg BI 'Play Out': SEC's Peirce

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The states should wait until the Securities and Exchange Commission’s Regulation Best Interest is finalized before they move ahead with their own best-interest rules, SEC Commissioner Hester Peirce said Thursday.

“I do think it would be helpful to have a common [best-interest] standard,” Peirce said during a question-and-answer session at the IAWatch compliance conference in Washington. “I urge people to take a look at the words of the [SEC best-interest standard], because I think when we first came out with Reg Best Interest, people just reacted to the fact that we didn’t cleanly just take the fiduciary standard … But I think if people looked at the words of the standard closely, they’d see it as actually quite a strong standard.”

In separate comments to ThinkAdvisor, Peirce said that it would be preferable in her view for the states to “see how [the SEC] rule comes out and then let’s have a conversation about what, if anything else, needs to be done. Let’s let our rule play out. The states’ input is really important to us and I just hope they keep working with us in this process.”

Peirce, who has complained previously about the “best interest” moniker, said that her “intention isn’t a superficial” best-interest title.

“I want to create an environment in which investors ask questions and are skeptical,” she said. “I want them to ask what they’re paying for what they’re getting … I’ve been an opponent of the fiduciary name as well because I think that label has also been used to tell people ‘just find somebody who calls themselves a fiduciary and you’ll be good to go.’”

Asked when the agency’s three-pronged advice-standards package would be finalized, including the much-debated Reg BI, Peirce said “soon,” and reiterated her previous comments that the rulemaking is a priority for SEC Chairman Jay Clayton and for her.

“I think it’s an important rulemaking. It is a big undertaking,” she said. “We did have a shutdown that did affect our rulemaking schedule, but it remains a priority and so I’m hopeful that it will get done soon.”

NASAA on Nevada’s Rule

Meanwhile, Michael Pieciak, president of the North American Securities Administrators Association and the commissioner of the Vermont Department of Financial Regulation, told the Nevada Securities Division in a letter on Thursday that Nevada’s fiduciary rulemaking does not violate securities laws.

Nevada’s draft regulations “should curb abusive sales practices in Nevada,” Pieciak wrote. “The division will likely receive objections to the draft regulations from the securities industry; however, we must remember the securities industry has proven itself adaptive and can accommodate these new regulations.”

In the field of securities law, Pieciak wrote, “state laws are pre-empted only to the extent they conflict with the federal securities laws.”

Under basic conflict pre-emption principles, he continued, “a state law is invalid if ‘compliance with both federal and state requirements is impossible” or if the state law “poses an obstacle to the accomplishment of Congress’ objectives’ in enacting the federal law.”

Nevada’s draft regulations “are a valid exercise of state regulatory authority” because they meet neither of those criteria, Pieciak said.

At an event held by NASAA on Capitol Hill Tuesday, Pieciak said that “NASAA has been engaged very proactively in discussions with the SEC on Reg BI, that continues through today and we believe that there will be a final rule at some point.”

He added: “Certain state regulators and state legislators, governors, a lot of stakeholders at the state level want to protect investors, want to protect citizens in their states, and that’s their prerogative. We have been focused, as an association, on engaging with the SEC, trying to provide as many comments, as much direction on how we think it can be improved as possible, because we think that’s our most valuable use of our time right now.”

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