SIFMA challenges new Missouri Securities Division rules 

August 23rd, 2023

The Securities Industry and Financial Markets Association (SIFMA) has filed a complaint over two Missouri Securities Division rules on providing financial advice based on ESG factors.

SIFMA filed its federal court challenge over rules that would require financial firms and professionals to obtain client signatures on state-scripted documents before providing advice that “incorporates a social objective or other nonfinancial objective”.

The Missouri documents force firms and clients to acknowledge that incorporating ESG factors “will result” in investments and advice “that are not solely focused on maximizing a financial return”.

In addition, firms would have to provide the scripts annually and clients would be required to re-sign the scripts at least every three years.

SIFMA argues that “social” or “nonfinancial” objectives may include multifaceted client objectives, such as tax considerations, diversification and risk tolerance, as well as faith or values-based objectives.

While anti-ESG legislation has been on the rise across the US in recent months, the association claims no other state requires a documentary record similar to Missouri’s rules. It argues that the new rules directly conflict with a primary objective of the federal securities laws: to create a uniform and consistent regulatory regime across all 50 states.

It claims the new rules would violate federal law and are not consistent with the National Securities Markets Improvements Act (NSMIA), which prevents states from adopting regulations that require financial professionals to create records “that differ from, or are in addition to” those imposed by federal law.

SIFMA argues that the rules “fill no void or blind spot that would protect Missouri investors today”, as existing federal securities laws require broker-dealers and investment advisers to provide investment advice that is in the best interest of their customers. It says the new rules are “thus unnecessary and create confusion”.

The complaint follows a North Carolina anti-ESG bill becoming law last month after a Democratic veto was overturned. The law prohibits state agencies and state pension plan fiduciaries from considering ESG measures when making investment decisions.