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Recent State Fiduciary Duty Developments: Arizona Enacts Best Interest Standard

Arizona has become the second state after Iowa to enact a best interest standard for the sale of annuities. Like the Iowa law, both of which become effective January 1, 2021, Arizona’s law is modeled after the National Association of Insurance Commissioners (NAIC) model regulation. The new law requires insurance producers to “act in the best interest of the consumer under the circumstances known at the time the recommendation is made, without placing the producer’s or the insurer’s financial interest ahead of the consumer’s interest.”

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The Second Circuit Upholds Reg BI

On June 26, 2020, the U.S. Court of Appeals for the Second Circuit issued its ruling on the challenge to the legality of the Regulation Best Interest final rule (Reg BI), promulgated by the U.S. Securities and Exchange Commission (SEC) under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. As reported on June 2, 2020, the Second Circuit entertained oral argument. It issued its ruling late in the day on June 26, just prior to Reg BI’s June 30, 2020, implementation date two business days later.

The Second Circuit’s ruling had three holdings: (1) the individual investment adviser petitioner had standing to bring the petition to review, but the state petitioners did not; (2) section 913(f) of the Dodd-Frank Act authorized the SEC to promulgate Reg BI; and (3) Reg BI is not arbitrary and capricious under the Administrative Procedure Act (APA). We focus the analysis herein on the latter two holdings.

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