Reg BI Compliance Deadline Remains Same Despite Coronavirus Outbreak
June 14, 2022
The temporary closure of non-essential businesses in the wake of the coronavirus pandemic has wreaked havoc on the United States economy. In recognition of this unprecedented situation, many agencies have relaxed their requirements in order to give organizations and individuals affected by the virus additional time to meet deadlines and otherwise come into compliance with certain rules, regulations, and directives. The Securities and Exchange Commission (“SEC”), however, recently confirmed that it will not push back the June 30, 2020 deadline for compliance with its Regulation Best Interest Rule (“Reg BI”) despite the coronavirus pandemic.
What Is Reg BI?
In 2019, the SEC adopted Reg BI to establish a standard of conduct for broker-dealers and persons associated with broker-dealers. Reg BI aims to improve investor protection by enhancing the obligations of broker-dealers when making investment recommendations. Reg BI incorporates FINRA’s quantitative suitability obligation but applies the best interest standard to broker-dealer conduct. A broker-dealer can meet the best interest standard under Reg BI by satisfying the following four obligations:
Care obligation – Reg BI requires that broker-dealers exercise reasonable skill, diligence, and care when making investment recommendations to clients. Broker-dealers must also understand the potential risks, rewards, and costs associated with these recommendations.
Disclosure obligation – Broker-dealers are required to disclose all relevant facts about the services and products they provide.
Compliance obligation – Broker-dealers must establish, maintain, and enforce policies and procedures designed to achieve compliance with Reg BI.
Conflict-of-interest obligation – Reg BI requires that brokers-dealers establish, maintain, and enforce policies and procedures designed to prevent, identify, and disclose conflicts of interest. These policies and procedures must:
Ensure that limitations on offerings don’t cause a firm or its financial professionals to place their personal interests or the interests of the firm ahead of the interests of the firm’s clients,
Mitigate any conflicts of interest that incentivize the broker-dealer’s employees to place their personal interests or the firm’s interests ahead of the interests of the firm’s clients, and
Eliminate bonuses, sales quotas, sales contests, and other non-cash compensation that promotes the sale of specific securities or specific types of securities within a specified time period.
What Does This Mean For Financial Advisors?
Despite the coronavirus outbreak, financial advisors are required to comply with the requirements of Reg BI. The failure to comply with Reg BI can have serious consequences. Therefore, financial advisors with questions about Reg BI compliance should seek legal counsel as soon as possible.
Fort Lauderdale Financial Advisor Representation Lawyers
At Simms Law, P.A., we represent financial advisors on a wide range of issues, including compensation issues, the expungement of disclosures through FINRA expungement proceedings, raiding-related claims, and matters pertaining to transitioning between firms. If you are a financial professional who has been accused of wrongdoing, or if you have general questions about FINRA compliance, please contact us by phone or through one of the contact forms on our website to schedule a free consultation.