Sifma Requests NASAA Drop Broker-Dealer Model Revisions

The Securities Industry and Financial Markets Association (Sifma) has requested that the North American Securities Administrators Association (NASAA) drop its proposed amendments to its broker-dealer model regulation.

Sifma asserted in a comment letter submitted last Friday that the proposal directly contradicts the Securities and Exchange Commission’s Regulation Best Interest (BI) by redefining what constitutes a recommendation, rewriting Reg BI’s conflicts-of-interest obligation, and treating cash or non-cash compensation differently.

“NASAA’s proposed changes would fundamentally rewrite the existing regulatory regime, including Reg BI, under which broker-dealers provide services to investors,” Kevin Carroll, deputy general counsel at Sifma, said.

NASSA’s proposal expands the Reg BI definition of a recommendation to include “any means, method or mechanism to feature or promote” account types, specific securities or investment strategies to retail customers. The definition contrasts with long-standing guidance from the SEC and the Financial Industry Regulatory Authority, which define recommendations as a “call to action,” Sifma noted.

According to the Sifma letter, NASSA’s plan states that disclosure alone is insufficient to overcome such conflicts but fails to present any rationale or evidence to support this claim.

Concerning cash or non-cash compensation, NASSA proposes that broker-dealers or agents be presumed to have put the firm’s interest ahead of the customer if they are rewarded “with additional cash or non-cash compensation” exceeding the sales commission resulting from a recommendation, according to Sifma.

Sifma also claimed that NASSA’s proposal violates Reg BI in five ways: its expansion of customer profile information, its “misstatement” of Reg BI’s reasonably available alternatives obligation, its treatment of costs, its “inconsistent” definition of a retail customer, and its titling provision.