SIFMA is an industry trade group representing securities firms, banks and asset management companies.
The Securities Division is part of Missouri's Secretary of State's office.
The civil action, which was filed on Aug. 10 in the U.S. District Court for the Western District of Missouri Central Division, named John R. Ashcroft, secretary of state of Missouri, and Douglas M. Jacoby, Missouri securities commissioner, as defendants.
SIFMA stated in the suit that the new rules fail to acknowledge that federal law already requires financial advisers to act in the best interest of their clients when providing personalized investment advice.
Under federal law, the complaint added, firms cannot place their interests ahead of their customers' interests for any reason, be it "social," "nonfinancial" or other reasons.
In a news release issued on August 10, SIFMA, as plaintiff, said it asked the court to strike down what it describes as "over-reaching, subjective, and impermissibly vague state regulations that require Missouri-specific disclosures that will confuse investors and violate federal law."
The new rules, SIFMA added in the release, require financial professionals in Missouri to create a "highly prescriptive" documentary record that none of the other 49 states require. As such, the new rules conflict with a primary objective of the federal securities laws, that is, to create a uniform, consistent, regulatory regime across all 50 states, SIFMA stated.
The lawsuit does not seek monetary relief, but rather injunctive relief and declaratory relief rendering the new rules invalid and unenforceable.
In an emailed statement, SIFMA's president and CEO Kenneth E. Bentsen Jr. said: "Missouri's ESG argument is a red herring. Financial professionals are already required by federal law to get consent from their clients for their investing strategies. The Missouri law does not provide additional protections for investors, and there is no void that it is designed to fill."
In response to SIFMA's suit, Mr. Ashcroft stated: "The rule implements client disclosure standards pertaining to security investments and how investment advisors and broker-dealers disclose investment strategies that propagate values-based agendas that are not purely focused on generating profit for their clients."
Mr. Ashcroft added: "Missouri is taking a disclosure-based approach to protecting investors and their money. Why would SIFMA be against that? In no way does this rule conflict with the federal securities laws as SIFMA decries, nor is it an undue burden to require investment professionals be fully transparent with their client."
Finally, Mr. Ashcroft noted: "We believe there is no federal protection for investment advisors to invest funds against the will of the investor and we will vigorously fight to protect the right of Missourians to be in charge of how their money is being invested."