The Securities and Exchange Commission issued two alerts today letting broker-dealers know that regulators will be looking for a "good-faith effort" to comply with the impending Regulation Best Interest.
Reg BI takes effect June 30 and holds brokers to a best-interest standard. The alerts were issued through the SEC’s Office of Compliance Inspections and Examinations.
Initial examinations of Reg BI will focus on assessing whether broker-dealers have made "a good faith effort to implement policies and procedures reasonably designed to comply" with the new rules, "including the operational effectiveness of broker-dealers’ policies and procedures," the office said in a press release.
Reg BI is part of a package of rules the SEC adopted on June 5, 2019. The package include Form CRS, a new disclosure form designed to better explain the relationship between broker and client.
Initial examinations of Form CRS will focus on assessing whether firms have made "a good faith effort to implement Form CRS, including reviewing the filing and posting of a firm’s relationship summary as well as its process for delivering the relationship summary to existing and new retail investors," the second alert said.
“Regulation Best Interest and Form CRS are critical to the protection of Main Street investors, and we feel it is important to share our plans for initial examinations to help firms assess their preparedness as the June 30, 2020 compliance date nears,” said Pete Driscoll, director of OCIE. “Based on conversations we have had with the industry, we know firms have made substantial progress in implementing these new rules. We understand that this implementation will be an iterative process, and our focus will be on firms continuing good faith and reasonable efforts, including taking into account firm-specific effects from disruptions caused by COVID-19.”
SEC Chairman Jay Clayton announced last week that Reg BI would not be delayed due to the pandemic. Still, SEC officials said they are making an extra effort to be prepared and not cause a disruption in the industry.
“OCIE has been working closely with both FINRA and SEC staff to ensure that we harmonize our examination efforts for Regulation Best Interest across our examination programs,” said John Polise, OCIE’s national director for the Broker-Dealer and Exchange program. “I encourage firms to review the Risk Alerts to understand the scope of initial exams.”
OCIE conducts examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, transfer agents, and others. It uses a risk-based approach to examinations to fulfill its mission to promote compliance with U.S. securities laws, prevent fraud, monitor risk, and inform SEC policy.
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