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Regulation and Compliance > Federal Regulation > SEC

SEC Releases FAQ on Reg BI Compliance

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The Securities and Exchange Commission states in a just-released FAQ on Regulation Best Interest that the Customer Relationship Summary, or Form CRS, will not satisfy a broker’s Regulation Best Interest disclosure obligations.

The six-page FAQ released Friday by the agency’s Division of Trading and Markets also clarifies the specific account recommendations covered under Reg BI.

Reg BI and Form CRS have “distinct disclosure delivery obligations” that cannot be satisfied through a hyperlink or other cross reference, according to Cipperman Compliance Services’ note on the FAQ.

Reg BI requires disclosure of “all material facts relating to the scope and terms of the relationship with the retail customer and all material facts relating to conflicts of interest that are associated with the recommendation,” information that likely exceeds Form CRS’ specific requirements, Cipperman quotes the FAQ as stating.

SEC staff also notes in the FAQ that, in most cases, “brokers may not make oral disclosures, then make a recommendation, and then follow up with the written disclosures. The FAQs also address the definition of ‘recommendation’ and how to mitigate conflicts of interest,” Cipperman said.

The six-page FAQ also sets out which account recommendations are covered under Reg BI.

Reg BI expressly applies to account recommendations including those of securities account types generally (e.g., to open an IRA or other brokerage account, or an advisory account), as well as recommendations to roll over or transfer assets from one type of account to another (e.g., from a workplace retirement plan account to an IRA), the FAQ states.

Brokerage accounts can include: education accounts —529 Plans and tax-free Coverdell accounts; retirement accounts — IRA, Roth IRA or SEP IRA accounts; and specialty accounts — cash or margin accounts, and accounts with access to foreign exchange or options trading.

“Different brokerage accounts can also offer different levels of services, such as access to online trading, or can offer different products, for example in higher dollar amount accounts (e.g., access to products with break-points),” the FAQ states.

The staff notes that these are just some examples of brokerage accounts that could be recommended to a retail customer, and to which Reg BI would apply.

Cipperman says to expect several more FAQs this year as firms grapple with implementing Reg BI and Form CRS.

“One practice point on conflict-of-interest disclosure: If it takes more than two sentences of disclosure, you probably shouldn’t do it,” Cipperman said.

— Check out Dodd and Frank Say SEC’s Reg BI Violates Law on ThinkAdvisor.


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