During a Tuesday Zoom meeting with top officials at the Financial Industry Regulatory Authority, Robert Colby, FINRA’s chief legal officer, was asked these questions by a broker-dealer participant: Did the Securities and Exchange Commission’s Regulation Best Interest supplant FINRA’s suitability standard? Did it just impose an additional obligation? And did something go away when Reg BI came into the picture?
Colby’s response: “Reg BI largely took over the sales practice/suitability area, and it did largely supplant our basic suitability Rule 2111 for the people to whom it applies.”
The broker-dealer self-regulator has submitted a rule filing to the SEC that would say that “if there are recommendations to which Reg BI applies, [Rule] 2111 will not apply,” that is, “recommendations with respect to retail persons; for institutions, FINRA’s suitability rule will continue to apply,” Colby explained.
FINRA’s separate suitability rule for other products, like variable annuities and for options rules “are still in place,” and “they have additional requirements.”
Colby also said that FINRA is currently combing through its rules “looking for different requirements that are paper-based, like manual signatures.”
FINRA is “talking to the states and the SEC on whether we can amend the rule in order to not use a manual signature any longer; ideally we would get rid of manual signatures wherever they might be.”
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