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March 13, 2020 at 10:13 AM
The Financial Industry Regulatory Authority is making changes to its suitability and noncash compensation rules to provide clarity on which standard applies and to address inconsistencies with the Securities and Exchange Commission’s Regulation Best Interest.
FINRA’s proposed rule change, which the broker-dealer regulator has sent to the SEC for approval, would: (1) amend the FINRA and capital acquisition broker, or CAB, suitability rules to state that the rules do not apply to recommendations subject to Reg BI, and to remove the element of control from the quantitative suitability obligation; and (2) conform the rules governing noncash compensation to Reg BI’s limitations on sales contests, sales quotas, bonuses and noncash compensation.
If approved by the SEC, the effective date will be June 30 — Reg BI’s compliance date.
The changes would amend the FINRA suitability rule, Rule 2111, to state that it will not apply to recommendations subject to Reg BI, and to remove the element of control from the quantitative suitability obligation.
In addition, the proposed rule change would conform the CAB suitability rule, CAB Rule 211, to the proposed amendments to Rule 2111, and would conform FINRA’s rules governing noncash compensation to Reg BI’s limitations on sales contests, sales quotas, bonuses and noncash compensation.
“Reg BI addresses the same conduct that is addressed by Rule 2111, but employs a best-interest, rather than a suitability, standard,” FINRA explains.
