SEC Reg BI vs. Suitability: Here's the Difference, According to FINRA's Cook

While the Financial Industry Regulatory Authority’s suitability rule “implicitly requires a broker-dealer’s recommendations to be consistent with customers’ best interests,” the Securities and Exchange Commission’s proposed Regulation Best Interest for brokers “explicitly establishes the customer’s best interest as an overarching standard of care,” according to Robert Cook, FINRA’s president and CEO.

In an Aug. 3 letter to Sens. Elizabeth Warren, D-Mass.; Sherrod Brown, D-Ohio; and Cory Booker, D-N.J; Cook also said the SEC’s advice standards proposals, including Reg BI, extend in “certain significant areas” the requirements for broker-dealers under current FINRA rules, including the suitability rule.

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The SEC proposals clarify the rules that apply to broker-dealers, Cook wrote.

As to Reg BI enforcement, Cook said that a broker-dealer that is not complying with Reg BI or other portions of the proposal, if adopted, “could be subject to an enforcement action by FINRA and the SEC.”

Also, while FINRA “will have a role” in supervising broker-dealer compliance with Reg BI, so would the SEC.

“FINRA does not independently interpret the SEC’s rules,” Cook told the senators. “Rather, FINRA examines broker-dealers for compliance with the SEC’s rules and enforces those rules in a manner consistent with the SEC’s authoritative interpretations.”