NASAA Opens Public Comment Period on Revised Broker-Dealer Conduct Rule

The Case

The North American Securities Administrators Association (NASAA) is requesting public comments on proposed revisions to NASAA’s broker-dealer conduct rule entitled Dishonest or Unethical Business Practices of Broker-Dealers and Agents (“Conduct Rule”). The 45-day comment period will run until December 19. The proposed revisions are intended to update the Conduct Rule in light of the Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) and other developments in the securities industry. 

“NASAA’s Conduct Rule is designed to ensure that investors receive unbiased recommendations and that investment professionals put investors’ interests first,” said NASAA President Leslie Van Buskirk. The proposed revisions to NASAA’s model rule regarding Dishonest or Unethical Business Practices of Broker-Dealers and Agents are the product of extensive efforts by several NASAA committees and working groups over the past three years. The proposal's objectives are to incorporate the core principles of Reg BI into NASAA’s existing broker-dealer conduct model rule and make other changes consistent with Reg BI.

Regulatory Implications

The proposed revisions to NASAA's Dishonest or Unethical Business Practices of Broker-Dealers and Agents rule reflect a significant effort to align state-level regulations with the SEC's Regulation Best Interest (Reg BI). Key regulatory implications include:

• The revisions incorporate the core principles of Reg BI, which requires broker-dealers to act in their clients' best interests. This harmonization helps create a more consistent regulatory landscape across federal and state jurisdictions.
  
  

• The updated Conduct Rule reinforces the importance of providing unbiased recommendations and prioritizing investors' interests. This strengthens protections for retail investors by addressing dishonest or unethical practices more comprehensively.
  
  

• Broker-dealers and agents may need to review and update their practices, policies, and procedures to follow the revised Conduct Rule. This includes documenting recommendations and being transparent about potential conflicts of interest.
  
  

• The 45-day public comment period allows stakeholders to provide input on the proposal, which could lead to further refinements before the rule is finalized. Firms should consider submitting comments if they anticipate challenges in implementing the proposed changes.

Practical Guidance for Firms

Broker-dealers and agents should prepare for the potential changes by taking the following steps:

• Review Current Policies and Procedures:
  Compare existing practices with the proposed revisions and identify areas that may require updates to align with the core principles of Reg BI.
  
  

• Assess Conflict of Interest Disclosures:
  Evaluate how conflicts of interest are disclosed and managed, promoting transparency in client interactions and recommendations.
  
  

• Enhance Training Programs:
  Provide training to staff on the updated Conduct Rule and the obligations under Reg BI to support compliance with the proposed changes.
  
  

• Conduct Compliance Audits:
  Perform audits to identify gaps in current practices and address any deficiencies related to ethical conduct and investor protections.
  
  

• Engage in the Public Comment Process:
  Consider submitting feedback during the comment period to address potential challenges or provide industry perspectives on the proposed revisions.

InnReg offers expertise in helping broker-dealers and investment advisors adapt to evolving regulatory requirements. Our services include firm registration, compliance program development and management, risk assessments, and more to help firms align with both federal and state-level conduct standards.