NASAA Prepares to Revise its Standard of Conduct Rule

Further, we have learned that NASAA also has nearly concluded its work on revisions to its model rule on Dishonest or Unethical Business Practices Of Broker Dealers And Agents (also referred to as its “standard of conduct” rule).

The revisions are intended to update the model rule in light of the U.S. Securities and Exchange Commission’s 2019 adoption of Regulation Best Interest and other developments in the securities industry. IPA has called for NASAA to withdraw its proposal leading a call- to-action grassroots letter writing campaign, filing an IPA comment letter, and engaging with 15 other associations to produce a joint trades letter.

IPA's comment letter focused on the following main points:

• The Proposal does not update or codify Reg BI. In fact, it conflicts in significant ways, including demanding a focus on “lower cost and lower risk” products.

• The Proposal would effectively prohibit traditional, federally regulated forms of brokerage compensation that are permissible under Reg BI and federal regulations.

• The Proposal would reformulate Reg BI’s definitions of “recommendation” and “retail customer.”

• The Proposal would require broker-dealers to “neutralize” certain conflicts of interest, a term that is not defined and is without precedent in securities law.

• The Proposal would interfere with ongoing federal initiatives and is preempted by federal law.

At NASAA’s annual meeting, we also learned that a re-proposal is expected before year-end.

Both of these critical changes require the industry’s engagement as IPA leads advocacy with state regulators.

If you have not already done so, it is urgent that you register for IPAVision and join us for the NASAA/State Policy Roundtable we have organized.