SEC Holds the Line on Reg BI Implementation

Securities and Exchange Commission (SEC) Chairman Jay Clayton issued a public statement April 2nd, reinforcing the SEC’s mission and focus on protecting investors and market integrity in the face of the COVID-19 pandemic. In line with that message, he announced the SEC would not be extending the implementation deadline for Regulation Best Interest and Form CRS – broker-dealers will still be required to comply by June 30, 2020. So if you haven’t already prepared for the new SEC rule, don’t delay any longer.

The chairman said the SEC and staff have engaged extensively with broker-dealers, investment advisers, retail investors and other market participants over the past several months regarding the implementation of Reg BI and Form CRS. They have also worked with the Financial Industry Regulatory Authority (FINRA) and other regulatory partners on this topic, and based on all of those interactions, they believe many firms with account relationships comprising a substantial majority of retail investor assets have made considerable progress in three areas:

1. Adjusting their business practices
2. Supplementing and modifying their policies and procedures
3. Aligning their operations and preparing for the requirements of Reg BI and the obligation to file and begin delivering Form CRS

As a result of that progress, and “because the continued implementation of these conduct and transparency initiatives, individually and collectively, will significantly benefit Main Street investors,” the SEC decided to keep the June 30, 2020, deadline for implementation.

“Firms should continue to make good faith efforts around operational matters to ensure compliance by June 30, 2020, including devoting resources as necessary and available in light of the circumstances,” said Clayton. “To the extent that a firm is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19, including as a result of efforts to comply with national, state or local health and safety directives and guidance, the firm should engage with us.”

While the rule was created by the SEC, FINRA will be primarily responsible for examining broker-dealers’ compliance with Reg BI. In its 2020 examination priorities, FINRA stated it will be conducting preparedness reviews for Reg BI and Form CRS in advance of the June 30, 2020, implementation date to learn about any implementation challenges its members face. Following implementation, FINRA will be examining firms for compliance with Reg BI and Form CRS.

During the review, FINRA will consider: procedures and training applying best interest to types of accounts; applying best interest to explicit and implicit hold recommendations if considering account monitoring; new elements of care, skill and cost when recommending; reasonably available alternatives; guards against excessive trading of accounts including those that give registered representatives discretion; and policies and procedures to provide Reg BI required disclosures, to identify and address conflicts of interests and for the filing, updating and delivery of Form CRS.

FINRA noted that it will work with the SEC to ensure consistency in examining firms and the associated person for compliance with Reg BI and Form CRS.

Kaufman Rossin has carefully examined the Regulation Best Interest and Form CRS rules and is prepared to help firms comply with the new standard and expectations. Contact our risk advisory services team to learn more about how we can help your firm comply with Reg BI.