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Increased FCA exposure for broker-dealers who advise public entities?

The Obama Administration has released a blueprint for regulatory overhaul, Financial Regulatory Reform: A New Foundation.

Among the changes proposed is one that could have False Claims Act ramifications: the establishment of a fiduciary duty for broker-dealers offering investment advice.

If enacted, this change could make sales of investments to public pension funds or in connection with municipal finance transactions more readily subject to scrutiny and state FCA enforcement. To the extent brokers are overpricing investments on sale, undervaluing them on purchase, or burdening transactions involving public funds with fees, a FCA action may provide a remedy. This proposal could shift the investment landscape from “Buyer Beware” to “Broker Beware.”

The administration’s white paper highlights five primary objectives:

(1) Promote robust supervision and regulation of financial firms.
(2) Establish comprehensive supervision of financial markets.
(3) Protect consumers and investors from financial abuse.
(4) Provide the government with the tools it needs to manage financial crises. (5) Raise international regulatory standards and improve international cooperation.

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