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The Securities and Exchange Commission's Regulation Best Interest (Reg BI) rule has far-reaching operational implications — and firms need to move fast. Here are five things you should do now to streamline compliance and capitalize on this regulatory change.
Reg BI includes four key obligations. The Customer Relationship Summary form (“Form CRS”) adds a fifth. Firms must comply by June 30, 2020.
Duty of care — Broker-dealers must have a reasonable basis to believe a recommendation is in the best interest of the investor and are also prohibited from putting their own financial interests ahead of the interests of their retail customers.
Conflict of interest — Firms must establish, maintain and enforce written policies and procedures that identify, disclose or eliminate material conflicts of interest associated with recommendations to clients.
Compliance — In addition to the policies and procedures required by the conflict of interest obligation, firms must establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg BI.
Disclosure — Prior to or at the time of the recommendation, broker-dealers must provide retail customers with full and fair written disclosure of all material facts relating to the scope and terms of the relationship with the retail customer, including conflicts of interest.
The disclosure must stipulate the following:
Form CRS — The Customer Relationship Summary must be provided to all clients and prospects and provide descriptions of:
Let's define best practices together. Don’t try to reinvent the wheel. Build on what others in the industry are doing. For example, FINRA recently published a handy Reg BI checklist that can help you think through key elements of compliance.
Form CRS will represent your first tangible evidence of compliance. Meeting the deadline will require actions and integrations across all your operations. Be sure to identify every potential use case as you tackle the first key steps:
Compliance will be assessed at the firm level. That means you’ll need to take an enterprise-wide view to manage all aspects of Reg BI, now and in the future. Focus on integration, visibility, agility and enrichment as you work to aggregate and consolidate relevant data across your enterprise.
Unlike the now-defunct Department of Labor (DOL) fiduciary rule, Reg BI is not prescriptive. Firms need to establish their own guideposts for compliance.
Delivery of Form CRS to your existing retail customers is only the beginning. Plan on updates and ongoing requirements for distribution. You must prep for on-demand and asynchronous execution along with other regulatory actions and challenges that may impact compliance. Think long term as you act in the short term. Keep your finger on the pulse of regulatory changes and trends.
Broadridge gets you ready.
Our Consulting team brings the hands-on expertise you need to create and distribute Form CRS and implement the Reg BI solutions that best meet your needs. From operations and communications to data and technology, we’ll help you turn compliance into a competitive advantage.