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SEC Roundup

July 2, 2019

The Securities and Exchange Commission (“SEC”) has been busy catching up with its obligations under the Dodd-Frank Wall Street Reform and Consumer Protect Act (“Dodd-Frank”), which required the SEC to study and adopt measures to clarify and address the standard of care owed by broker-dealers and investment advisers to their clients. Accordingly, on June 5, 2019, the SEC adopted the following rules and interpretations intended to fulfill its mandate under Dodd-Frank:

  • Commission Interpretation Regarding Standard of Conduct for Investment Advisers. This Interpretation clarifies that at all times an investment adviser must serve the “best interest” of its client. An adviser’s fiduciary duty to its client is comprised of a duty of care and a duty of loyalty. The duty of care requires an adviser to provide investment advice in the best interest of its client based on the client’s objectives. The duty of loyalty requires an adviser to eliminate or, at a minimum, provide full and fair disclosure of, all conflicts of interest in order for the client to provide consent. The Interpretation is effective upon publication in the Federal Register.
  • Form CRS Relationship Summary; Amendments to Form ADV. This is a new rule requiring registered investment advisers and registered broker-dealers to provide a brief relationship summary, Form CRS, to retail investors and to file the relationship summary with the SEC as part of Form ADV. Specifically, Form CRS will provide retail investors information about the types of clients and services that the adviser offers; fees and expenses, conflicts of interest and the required standard of conduct associated with the services offered; reportable legal and disciplinary history; and how to obtain additional information. A “retail investor” is “a natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.” The compliance date is June 30, 2020.
  • Regulation Best Interest: The Broker-Dealer Standard of Conduct. “Regulation BI” is a new rule that requires a broker-dealer to act in the “best interest” of a retail customer when making securities recommendations to such retail customer. Under Regulation BI, at the time a trade is placed a broker-dealer must place the interest of the retail customer ahead of its own financial or other interest. Additionally, a broker-dealer must establish policies and procedures reasonably designed to identify and disclose conflicts of interests and, where disclosure is insufficient, to mitigate and/or eliminate the conflict. The definition of “retail customer” is different from the definition of “retail client” in Form CRS, described above. A “retail customer” is “a natural person, or the legal representative of such natural person, who: (A) receives a recommendation of any securities transaction or investment strategy involving securities from a broker, dealer or a natural person who is an associated person of a broker or dealer; and (B) uses the recommendation primarily for personal, family, or household purposes.” The compliance date is June 30, 2020.
  • Commission Interpretation Regarding the Solely Incidental Prong of the Broker-Dealer Exclusion from the Definition of Investment Adviser. This Interpretation of Section 202(a)(11) of the Investment Advisers Act of 1940 reaffirms and clarifies that a broker-dealer’s provision of advice with respect to securities is considered “solely incidental” to the broker-dealer’s business if the advice is “reasonably related” to the broker-dealer’s primary business of effecting securities transactions. The facts and circumstances of the broker-dealer’s business will inform whether the “solely incidental” prong has been satisfied. The Interpretation is effective upon publication in the Federal Register.

In addition to the above rules and interpretations, on June 18, 2019, the SEC published “Concept Release on Harmonization of Securities Offering Exemptions” (“Concept Release”). Through the Concept Release, the SEC is soliciting comments on ways to simplify, harmonize and improve the various exemptions from registration under the Securities Act of 1933 in order to more effectively promote capital raising while maintaining investor protections. Specifically, the SEC invites comment on whether:

  • the limitations on who can invest (including the definition of “accredited investor”), and amounts that can be invested, in some exempt offerings should be modified;
  • there are ways to facilitate an issuer’s transition from relying on one exemption to another;
  • companies’ ability to raise capital should and could be expanded through pooled investment funds;
  • retail investors should be able to participate in capital raising efforts through pooled investment funds; and
  • revisions are warranted with respect to resales of securities originally issued in exempt offerings.

The public comment period for the concept release will remain open for 90 days following publication in the Federal Register.


Beth Clark


The contents of this Alert are for informational purposes only and do not constitute legal advice. If you have any questions about this Alert, please contact the Shulman Rogers attorney with whom you regularly work or contact us here.