August 7, 2018 / 4:58 PM / a year ago

Proposed U.S. brokerage rule draws criticism from Massachusetts regulator

NEW YORK, Aug 7 (Reuters) - A Democratic state regulator from Massachusetts on Tuesday blasted a proposed rule by U.S. financial regulators, saying it does not go far enough to protect investors from brokers who may have a conflict of interest and that if passed, the state would adopt its own rules to raise standards for brokers.

Opposition from the state’s influential Secretary of the Commonwealth William Galvin and U.S. Senator Elizabeth Warren could pressure two Democratic members of the U.S. Securities and Exchange Commission to vote against the SEC’s proposed Regulation Best Interest. This would make it harder for SEC Chairman Jay Clayton to pass the proposal he supports.

Clayton’s office did not immediately respond to a request for comment.

The SEC on Tuesday wrapped up its three-month public comment period on the proposed Regulation Best Interest.

While key industry stakeholders such as the Securities Industry and Financial Markets Association and some Wall Street brokerages have said they support proposal, Galvin criticized it as “weak and unclear.”

The latest suggestion in a decade-long debate over how to address conflicts of interest in the financial advice industry, the proposed rule would require brokers to give clients a four-page document detailing how they get paid, any conflicts and a list of questions clients could ask.

Galvin, siding with comments U.S. Senator Elizabeth Warren of Massachusetts made earlier this month, said the rule is weak because it fails to give investors the option to sue. It also does not require brokers to take on a fiduciary obligation to clients, a standard that forces brokers to put the interest of their client ahead of the interest of their employer or a financial firm that may pay lucrative commissions if the broker sells a financial product or fund.

Galvin and Warren’s opposition will add pressure for the SEC’s two Democratic commissioners Robert Jackson and Kara Stein to vote against the proposal as it stands. This could force Clayton to wait until Elad Roisman, the Republican nominee for the fifth Commission seat is place, before he can push the proposal through.

Additional reporting by Michelle Price in Washington; Editing by David Gregorio

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