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Regulation and Compliance > State Regulation

XYPN Mulls Supreme Court Challenge to SEC Reg BI

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XY Planning Network is mulling further legal challenges to an appeals court ruling late Friday upholding the Securities and Exchange Commission’s Regulation Best Interest.

“Within the next week or two” XY Planning Network will decide how to move forward, said Michael Kitces, co-founder of XY Planning Network, during an early Monday morning media call.

XYPN, which challenged the agency on Reg BI, is considering two options: First “is to ask the appeals court to hear the case en banc — which means with all of the appeals court judges and not just the three-person panel who hear our case originally,” Kitces explained.

XYPN “is still weighing whether that’s worthwhile to pursue and whether the court is likely to take it up,” Kitces said.

The second option would be to appeal the case to the Supreme Court.

“While the Supreme Court doesn’t necessarily rule on situations like this where there’s not directly any split decision about fiduciary advice, it is still possible that we can challenge them [the SEC] up to the Supreme Court —just on the fundamental basis that [the court] gave the agency more deference than they should have [and] that they didn’t follow precedents, which exist in other circuits, around how deference to the agencies is determined,” Kitces explained.

“We’re still weighing our options on if we want to pursue that in full,” he added.

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, seven states and the District of Columbia “would have preferred, it is what the SEC chose after a reasoned and lawful rulemaking process.”

Kitces reiterated Monday that XYPN was “not happy to see the ruling itself and how it came out.”

Still, XYPN “certainly appreciate the court’s acknowledgement that both XYPN members and registered investment advisors in general are put at a competitive disadvantage from Regulation Best Interest, that was an essential part of our standing in the case,” he explained.

The court, Kitces said, “did affirm the harm that Regulation Best Interest does to registered investment advisors.”

Kitces added that “if this isn’t a matter that we can resolve with the SEC and the courts, it continues to be a state advocacy issue; we’ve already seen a great number of states challenging Reg BI legally.”

XYPN “will continue to be active with advocacy at the state level around the very basic principle that advice has only ever been and should always be fiduciary,” Kitces said.

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