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Your October Reg BI update

Regulatory Update – What’s Next for Reg BI?


Roundtable on Regulation Best Interest and Form CRS. Expect important feedback on compliance from the SEC’s Staff Standards of Conduct Implementation Committee and the Financial Industry Regulation Authority (FINRA) at their roundtable on October 26. Their observations will help firms assess their Reg BI and Form CRS compliance – in terms of both specific sections of Form CRS and broader changes in their overall approach.

The Next Reg BI Exams are Coming. On October 9, officials from the Office of Compliance Inspections and Examinations (OCIE) announced phase two of their Reg BI exams. During the SEC’s first review of form CRS, it was noted that “many distributors apparently fell short of expectations”. Form CRS will remain an enforcement priority in the SEC’s fiscal 2021, which began on October 1.

Disclosure Requirements of Form CRS. On October 8, the staff of the Division of Investment Management and the Division of Trading and Markets published additional “frequently asked questions” (“FAQs”) covering the disclosure requirements of Form CRS with respect to a firm’s disciplinary and legal history. The FAQs are intended to address issues that the Committee’s review has identified as well as questions received from firms.

Massachusetts’ Fiduciary Rule. Enforced just two months after Reg BI, the Massachusetts’ rule has some firms responding to not just one, but two separate regulators. Other states, including New Jersey, whose own rule is delayed due to COVID-19, are watching the Bay State closely.

Annuity Suitability and the Best Interest Standard. Four states - Rhode Island, Arkansas, Michigan and Nevada - are currently working to adopt standard of conduct rules for the sale of annuities. The Suitability in Annuity Transactions Model Regulation (#275) serves as a basis for this regulatory framework, which requires agents and carriers to act with “reasonable diligence”, care and skill in making recommendations.

Reg BI Phase 1 Exam Report from NASAA - Results of a nationwide examination of more than 2,000 firms by state securities regulators provide the first comprehensive look at industry practices prior to the implementation of the Securities and Exchange Commission’s Regulation Best Interest. According to NASAA, the goal of Phase I was to conduct a comprehensive examination of broker-dealer and investment adviser practices as they stood in 2018. The effectiveness of Regulation Best Interest can then be measured against this baseline.

A possible Reg BI revamp. According to David Bellaire, general counsel at the Financial Services Institute, a Biden presidency could result in strict enforcement of Reg BI. He adds that the SEC and DOL would most likely revisit standard-of-care regulation too. Jason Berkowitz, IRI’s chief legal and regulatory affairs officer, agrees that a Democratic-led SEC is also likely to tighten up Reg BI and that this could slow down state-level advice regulation.

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Be confident, no matter what. Broadridge is currently working closely with RIAs, independents, broker-dealers and regulators to help prepare them for tomorrow. To learn more, talk to Broadridge today.

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