Remarks as Prepared for SIFMA’s Regulation Best Interest Seminar – Ken Bentsen, SIFMA

Remarks as prepared for SIFMA’s Regulation Best Interest Seminar.

Good afternoon. Thank you for joining us today for the opportunity to hear from key regulators and practitioners – including both in-house and outside counsel – about the Securities and Exchange Commission’s (SEC) newly finalized Regulation Best Interest, Form CRS, and related interpretive guidance. I also want to thank all of our panelists for taking the time to be with us this afternoon.

In particular, I’d like to thank SEC Commissioner Hester Peirce and two of the lead architects of Reg BI and Form CRS: Brett Redfearn, Director of Division of Trading and Markets, and Dalia Blass, Director of Investment Management.

While we are gathered today to discuss the new standard of conduct for broker-dealers, and a new uniform disclosure for both broker-dealers and investment advisers, this is hardly the start of the conversation.

The concept of a heightened standard of conduct for broker-dealers when providing personalized investment advice to consumers has been debated, studied and analyzed for more than a decade. And it has been nine years since Congress directed the Securities and Exchange Commission to evaluate whether to apply a uniform standard of conduct to broker-dealers and registered investment advisers.

All the work finally bore fruit last month in the form of the finalized Regulation Best Interest rulemaking package.

The debate has never been about whether to raise investor protection – our industry has supported the creation of a heightened conduct standard for broker-dealers for more than a decade.

The new rule appropriately attempts to strike that balance – it is robust and expansive and will directly enhance investor protection, but without limiting choice or access.

It is undeniable that Reg BI will impose a materially heightened standard of conduct for broker-dealers when serving retail clients. In fact, it could be argued that this is the most significant enhancement of the standards since the adoption of the Security Act of 1934.

While principles-based, the rule is specific with respect to the duty and obligations brokers owe to their clients, and what steps they must take to comply, including the obligation to eliminate, or disclose and mitigate, certain conflicts of interest.

Under Reg BI, recommendations no longer may be just suitable for the client, but rather they must be in the retail customer’s “best interest.”

Broker-dealers must also mitigate, and in some cases eliminate, financial conflicts of interest. Disclosure of a financial conflict alone also is not considered adequate, effectively holding broker-dealers to a standard as high – if not higher – than the one applicable to registered investment advisers today.

The new rule also requires broker-dealers to exercise reasonable “diligence, care and skill” in making recommendations.

These principles are the core of a broker-dealer’s “Care Obligation” under Reg BI.

Importantly, the new standard — together with existing standards — addresses the intended principles, goals and protections of the former Department of Labor fiduciary rule. Reg BI applies more broadly than the DOL fiduciary rule, appling to all retail customer accounts, not just retirement accounts, and allows the SEC to enforce a common standard across the industry.

At the same time, it avoids the many shortcomings that were embedded in the DOL rule, such as those that threatened to lead to greater cost, less choice and fewer professional services and options for retirement savers.

For the industry, the costs to implement will be significant, but we believe worthwhile to uniformly enhance investor protection to the level investors should and do expect.

The totality of these new, explicit regulatory requirements will require brokerage firms to dramatically enhance their supervisory and compliance regimes to the benefit of retail investors.

These are some of the issues we are here today to discuss. We are honored to be joined by many in SEC leadership who had a strong hand in crafting the rule. We will be hearing their expert perspective on not only Reg BI, but also Form CRS, the new Guidance on Investment Advisers’ Fiduciary Duty and the “Solely Incidental” Prong under the Advisers Act.

Thereafter, we will look ahead and address ‘what’s next’ both in terms of what implementation looks like but also state-level fiduciary proposals and potential DOL action.

Before we get started on the program, I would like to thank our sponsors: the Bates Group, Deloitte and Oliver Wyman, as well as a special thank you to Wilmer Hale for hosting us for this Seminar. Programs like these would not be possible without their generous support.

I’m now pleased to welcome to the stage Dalia Blass and Brett Redfearn, Directors of the SEC Divisions of Investment Management and Trading and Markets, respectively, for a discussion that will be moderated by esteemed partner, and counsel to SIFMA on Reg BI, Yoon-Young Lee of Wilmer Hale.

Dalia Blass was named the U.S. Securities and Exchange Commission’s Director of the Division of Investment Management in September 2017.

Ms. Blass previously served in a number of leadership roles in the Division of Investment Management. Ms. Blass returned to the SEC as Director of the Division of Investment Management in September 2017 from private practice, where she advised on a broad range of investment fund, private equity, and regulatory matters. Earlier in her career, Ms. Blass practiced corporate law in New York and London.

Ms. Blass earned a J.D. from Columbia University School of Law. She received her B.A in international studies from the American University and studied political science at the American University in Cairo.

Brett Redfearn was named the U.S. Securities and Exchange Commission’s Director of the Division of Trading and Markets in October 2017.

Mr. Redfearn joins the SEC from J.P. Morgan, where he was Global Head of Market Structure for the Corporate and Investment Bank.

Mr. Redfearn has a long history in the U.S. equity markets, having worked with investors, exchanges and broker-dealers. During his career, he has focused on how technology, regulation and business trends are changing trading patterns across asset classes and geographic regions.

He has served as Chairman of SIFMA’s Equity Markets and Trading Committee and was a participant on the Security Traders Association Market Structure Analysts Committee and the Canadian STA Trading Issues Committee. Previously, Mr. Redfearn has served on the boards of Bats Global Markets, BATS Exchange, the National Organization of Investment Professionals, the Chicago Stock Exchange, and BIDS Trading.

Mr. Redfearn earned his M.A. in political science from the New School for Social Research and his B.A. from the Evergreen State College in Olympia, Washington.

We are honored to have you here today, Dalia and Brett. Thank you again for taking the time to join us.

Kenneth E. Bentsen, Jr. is president and CEO of SIFMA, the industry trade group representing securities firms, banks and asset management companies. He is also chairman of the Global Financial Markets Association (GFMA), of which SIFMA is the U.S. regional member.