Regulation and Compliance Litigation

SIFMA, FSI Join Suit to Strike Down DOL Fiduciary Rule

News June 29, 2024 at 08:41 AM
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Image of a gavel on an open book and the words Fiduciary Rule, along with the logo of the US Dept. of Labor

The Securities Industry and Financial Markets Association along with the Financial Services Institute filed a complaint Friday against the Labor Department's new fiduciary rule, asking the U.S. District Court for the Northern District of Texas court to vacate the rule.

SIFMA and FSI have joined via a plaintiff-intervenors' complaint the suit filed on May 24 by nine insurance industry trade groups.

The 2024 rule "is materially indistinguishable from the 2016 rule," SIFMA and FSI state, and Labor's rule "not only lacks statutory authority, but also violates the Administrative Procedure Act because it lacks both rational justification and adequate cost-benefit analysis."

The complaint, however, "does not challenge the prohibited-transaction exemption (PTE) 2020-02 (which some broker-dealers utilize in situations where they are fiduciaries under the Department's 1975 test) or the Department's recent amendments to that exemption," SIFMA and FSI state.

FSI and SIFMA ask the court to vacate and "set aside the 2024 rule and declare it to be in excess of the DOL's statutory authority, arbitrary and capricious, and otherwise not in accordance with law."

If the 2024 rule goes into effect, "recommendations by a broker-dealer or other financial professional regarding assets in a retirement account, including sales recommendations, will once again be considered 'fiduciary' advice even in the absence of an ongoing, mutually recognized advice relationship," FSI and SIFMA state. "Once again, transaction-based compensation in connection with such transactions will be presumptively unlawful."

With the Securities and Exchange Commission's Regulation Best Interest, "the needs case for the Department's unlawful regulation of broker-dealers vanished," SIFMA and FSI said.

In Reg BI, moreover, "the SEC rejected the very thing that the Department — which is an employment regulator, not a broker-dealer regulator — boasts of having imposed here:  promulgation of 'a uniform standard of conduct [for] all financial professionals regardless of how they engage with their retail customers' as stated in the complaint," the groups said in a statement.

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