SEC, FINRA Want ‘Good-Faith’ Compliance with Reg BI

SEC, FINRA Want ‘Good-Faith’ Compliance with Reg BI

Regulation Best Interest, or Reg BI for those more or less in the know, is ready to go live on 30 June.

Anxiety surrounds the new regime, which comprises a complex of interpretable rules and potentially burdensome record keeping, particularly for smaller firms. The most nerve-wracking facet, perhaps – as one could imagine – is enforcement procedures. 

Will the SEC and FINRA, the regulation’s sponsors and enforcers, be draconian in applying the still ill-understood regulations or will they allow a grace period for accidental violations? 

Mark Cresap, president of securities brokerage Cresap Inc., told a conference audience recently: “If regulators come in guns blazing, it’s going to be very difficult to maintain the transaction-based model.” If his fears reflect the general view, we can surmise that financial professionals expect little mercy – or at the least, they’re very nervous. 

An encouraging word comes from the aptly named John Polise at the SEC’s Office of Compliance Inspections and Examinations, a department whose moniker alone can produce the cold sweats. Polise says the SEC has no intentions of playing the entrapment game, though. Overall, they’re “mostly looking for good faith efforts in trying to comply with the rules,” he says. 

This doesn’t mean your company can plead ignorance, Polise warns: financial firms had better be applying themselves to the job of understanding and implementing the new rules. For Reg BI, he counsels, a wink from a blind eye will not do. Companies can expect random visits from inspectors from the moment the rules come into play. 

FINRA examiners will determine if firms are complying with the so-called four mandated obligations: establishment of proper disclosure policies, due care, efforts to restrict conflicts of interest, and rigorous compliance with the regs. Companies should take care how they behave in the final months before Reg BI is enforceable: the old rules still apply and the regulators will be checking.

For more information, please read:
“No ‘Gotcha:'” SEC, FINRA Detail Reg BI Compliance | Wealth Management

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