Thursday, July 2, 2020
The states and XY Planning have failed in their bid to stop Regulation Best Interest. The Second Circuit found that the SEC had discretionary authority to enact a regulation short of a uniform fiduciary standard. It also found that the states lacked standing to sue because their theory that their tax revenue would decline was "speculative."
With Reg BI going into effect, states must decide whether to simply pass their own statutes and rules. As it stands, Nevada remains the nation's only state to have a state fiduciary statute. Other states, notably New Jersey and Massachusetts have pursued administrative rule making approaches. The next fight will likely be about the scope of state authority to regulate securities sales practices.
Industry lawyers will likely do all they can to forestall the promulgation of state regulation or, if that fails, seek to have it struck down as somehow preempted by federal law. Some academic work has begun to explore this issue. Columbia Law's Yerv Melkonyan has a forthcoming Note exploring the topic (it was also featured on Andrew Jennings's podcast here). In a symposium piece, I took a close look at one preemption argument industry representatives made in comment letters sent to state regulators here. If states do move forward on their own, I expect courts will ultimately have to sort out the scope of state power.