Second Circuit Denies Challenge To Reg. BI

The U.S. Court of Appeals for the Second Circuit denied a petition filed by several state attorneys general and various investment advisers (collectively, the "Petitioners") challenging the legality of the SEC's adoption of Regulation Best Interest ("Reg. BI").

As previously covered, New York Attorney General Letitia James and several other state attorneys general sued the SEC in 2019, alleging that Reg. BI is contrary to the intent of Congress, and undermines critical consumer protections concerning retail investors. That complaint, consolidated with others, later evolved into a rulemaking challenge under SEA Section 25(b) (i.e., direct proceedings at the appellate level).

The Second Circuit denied the petition for review, finding that (i) Reg. BI is authorized under Section 913(f) of Dodd-Frank and (ii) its adoption was not "arbitrary and capricious" for purposes of the Administrative Procedure Act. The Court said that while Reg. BI "may not be the policy that