The Financial Industry Regulatory Authority is providing assistance to member firms to help with their compliance efforts related to Regulation Best Interest.
Regulatory Notice 23-20, published by FINRA on Dec. 5, highlights key regulatory developments and resources pertaining to Reg BI.
The Securities and Exchange Commission adopted Reg B1 in June 2020 to establish a “best interest” standard of conduct under which broker-dealers may not put their financial interests ahead of the interests of a retail customer when making recommendations.
In its regulatory notice, FINRA highlights the SEC’s series of Staff Bulletins reiterating standards of conduct for broker-dealers and investment advisers, and encouraged members to review the bulletins and other resources as part of their ongoing efforts to meet their B1 obligations. The resources include risk alerts issued in 2020 and 2023, a No Action Letter, a Small Entity Compliance Guide, and Frequently Asked Questions.
According to FINRA, the Bulletins emphasize that both Reg BI and the fiduciary standard under the Advisers Act are “drawn from key fiduciary principles” that impose an obligation to act in a retail investor’s best interest and, although the specific application of the two standards may differ in some respects, they “generally yield substantially similar results in terms of the ultimate responsibilities owed to retail investors.”
The Bulletins address three separate topics: account recommendations, conflicts of interest and care obligations. For each of these topics, the Bulletins reiterate the standards of conduct and provide SEC staff views on how broker dealers and investment advisers can satisfy their obligations under Reg BI and the fiduciary duty.
To further assist with compliance efforts, FINRA noted that it hosts a dedicated Reg BI conference, presents Reg BI panels during other conferences, makes past Reg BI events available to the public on-demand at no cost, and has created a Reg BI webpage that includes links to relevant materials concerning Reg BI and Form CRS.
A recent analysis by the North American Securities Administrators Association found that while brokers are making progress in their policies and procedures to meet Reg BI obligations, they still have further to go on certain elements of compliance, such as offering customers reasonably available alternatives to recommendations and mitigating conflicts of interest.
The attorneys at Lewitas Hyman include former senior attorneys at the SEC whose legal experience and industry knowledge make them uniquely qualified to provide counsel on securities regulatory, compliance and enforcement matters. If your firm is facing an investigation from a regulatory agency, please contact us at (888) 655-6002 or through our online contact form.