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June 26, 2020 at 09:32 PM
The U.S. Court of Appeals for the 2nd Circuit ruled late Friday afternoon that Section 913(f) of the Dodd-Frank Act grants the Securities and Exchange Commission broad rulemaking authority, “and Regulation Best Interest clearly falls within the discretion granted to the SEC by Congress.”
The court stated that “although Regulation Best Interest may not be the policy that petitioners” XY Planning Network and the seven states attorneys general and the District of Columbia “would have preferred, it is what the SEC chose after a reasoned and lawful rulemaking process.”
Reg BI goes into effect on Tuesday.
The court held that the individual investment-advisor petitioner, XY Planning Network, has standing to bring its petition for review because of competitive disadvantage, but the state petitioners do not.
Regulation Best Interest “is not arbitrary and capricious” under the Administrative Procedures Act, the court ruled.
Michael Kitces, co-founder of XY Planning Network, said in an emailed comment shared with ThinkAdvisor: “While we appreciate the court’s acknowledgment that XYPN members and other registered investment advisors will be put at a competitive disadvantage by Regulation Best Interest — affirming our standing to challenge the rule — we are incredibly disappointed that the courts have nonetheless allowed Regulation Best Interest to stand.”
The Dodd-Frank Act authorizes the SEC to promulgate Reg BI, the 28-page brief states.
“Congress stated that the SEC ‘may commence a rulemaking, as necessary or appropriate in the public interest and for the protection of retail customers . . . to address the legal or regulatory standards of care for’ broker-dealers,” the ruling stated.
