The SEC on April 18th proposed “Regulation Best Interest,” a rule under the Securities Exchange Act of 1934 that would require broker-dealers and associated persons to act in the best interests of retail customers when recommending securities transactions or investment strategies. According to the proposed rule, a broker-dealer or associated person would satisfy this obligation by:

  • disclosing in writing the key facts about the relationship, including material conflicts of interest;
  • exercising reasonable diligence, care, skill, and prudence;
  • establishing, maintaining and enforcing written policies and procedures reasonably designed to identify and then disclose or eliminate material conflicts of interest; and
  • concerning any material conflict of interest arising from financial incentives, also establishing, maintaining and enforcing written policies and procedures reasonably designed to mitigate the conflict of interest.