SEC Commissioner Hester Peirce warned broker-dealer executives Thursday to brace for a “massive implementation” process for Regulation Best Interest, and urged attendees to alert the agency quickly to any compliance hurdles.
“As I said at the time we adopted the [Reg BI] rule, it’s a very aggressive implementation timeline,” Peirce said at the Securities and Exchange Commission and Financial Industry Regulatory Authority joint National Compliance Outreach Program for Broker-Dealers, held at the Federal Reserve Bank of Chicago.
“There are reasons,” Peirce said, for the aggressive compliance date of June 30, 2020. “We want to get this standard in place; people have been waiting for it for a long time. So it does make sense to move fast, but at the same time I know people are going to run into a lot of challenges,” she continued. “It’s a complicated area; the [Reg BI] standard itself is not that complicated, but as you can see from the 700-plus pages that accompany it, thinking about how it applies in different circumstances it is very difficult.”
Peirce said she’s telling the industry “to come in as soon as they see issues and tell us about them,” noting that it’s “very likely” the agency will issue FAQ guidance. “It’s better to get those questions in early so that they can get answered early,” she said. “Things take a long time at the SEC; it takes a long time from when we get your question to when we craft an answer — so get ‘em in early.”
She also explained that the securities regulator is working with FINRA — which will be the enforcer of Reg BI — on implementation as “it’s really important for us to work with the frontline regulator.”
What should BDs be doing now? Reg BI compliance is “going to require you to think through a lot of the policies and procedures and supervisory arrangements that you have in place to make sure they’re consistent with the standard. But I think a lot of you are already trying to do something similar and now it’s a matter of trying to align it,” Peirce said.
Peirce maintained that Reg BI “will definitely help us to bring cases that we weren’t able to bring before against people who weren’t doing the right thing.”
No ‘Gotcha’ Exams
John Polise, associate director of the SEC’s Office of Compliance Inspections and Examinations’ Broker-Dealer and Exchange Program, said at the compliance outreach event that OCIE will not do “gotcha exams” initially regarding Reg BI compliance, and is now working with FINRA “on a unified approach to what the reg means an how we examine for it.”
Right now, OCIE is “understanding the components of Reg BI and how people may comply with them.”
“Between now and the effective date, in the course of other examinations, we may very well ask ‘how are you doing with BI? What are you thinking about with BI and how are you approaching it? Not to identify deficiencies, per se, but to make sure our registrants are thinking about them.”
Come July 1, 2020, Polise continued, “assuming the Reg is still in place, we’ll still not be doing ‘gotcha’ exams. I think the idea is to make sure that you have policies and procedures in place to point out material weaknesses in those and to try to raise the level of compliance.”
Ed Wegener, senior vice president and Midwest regional director at FINRA, added at the event that it’s important that the SEC and FINRA “take a consistent approach” regarding Reg BI compliance.
Reg BI is a “fairly significant and long rule with a lot of aspects to it, so right now we’re in the process of assessing the rule, the impact the rule has on our member firms, assessing the impact it has on our rulebook,” Wegener said.
FINRA, he added, is also “educating our examination staff and managers to make sure that they understand the expectations” of Reg BI, and that “we look at our examination content to make sure that when we come out to conduct examinations we’re focused in the right area.”
— Check out House Votes to Halt SEC Regulation Best Interest on ThinkAdvisor.