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May 08, 2019 at 03:11 PM
As the SEC works toward finalizing its Regulation Best Interest proposal for brokers, two issues are front and center for the Financial Industry Regulatory Authority: how to implement the new rule as well as potential changes to the broker-dealer self-regulator’s own rules, FINRA CEO Robert Cook said Wednesday.
“Wherever the SEC lands, it may have implications for our rulebook,” Cook said during a question and answer session at the Institute for Portfolio Alternatives’ annual conference in Washington. “Let’s say that [the SEC] standard incorporates the [FINRA] suitability standard within it; then it seems like it might make sense for us to look at our suitability rule.”
(Related: Raymond James CEO Opposes State Fiduciary Standards )
FINRA is also “thinking more generally about are there aspects of our rules that might need to be adjusted/aligned with where the SEC lands,” Cook said. “It’s not surprising because most of the sales practice requirements historically have come from the FINRA rulebook. Reg BI is sort of federalizing sales practice issues.”
Philosophically, Cook added, “it doesn’t make sense that you would have rules where there’s a risk of inconsistency in approach.”
In separate comments to ThinkAdvisor after his remarks, Cook said in his view, as it stands now, “Reg BI incorporates the suitability rule, but adds to it; there are other requirements there that are more explicit with additional requirements.”
There’s a “suitability element to Reg BI, and that’s when we’re talking about looking at alignment with our rulebook; if they [the SEC] have covered 100% of our suitability rule” in the final version of Reg BI, “then we might look at whether we need our suitability rule or do we need it in all circumstances,” Cook said.
Because FINRA is “the front line examiner” of broker-dealers, the regulator will need to “make sure that our examiners are well-trained and understand the requirements of the rule design,“ Cook said during his Q&A remarks.
Unlike other SEC rules that FINRA examiners must interpret, Reg BI “is going to be in the order of magnitude that’s going to be quite different,” than other SEC rules, Cook added. “We’re going to have to work closely with the SEC to make sure we’re examining it as intended for.”
