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July 10, 2020 at 12:09 PM
The Financial Industry Regulatory Authority is taking a “good-faith” effort approach in examining broker-dealers for compliance with Regulation Best Interest, but “open issues” remain that need further guidance from the Securities and Exchange Commission in light of Reg BI’s principles-based make-up.
“We’re not expecting perfection, but FINRA will be looking for good-faith efforts” to comply with Reg BI and the customer relationship summary, or Form CRS, said Meredith Cordisco of FINRA’s Office of General Counsel, during a recent FINRA Unscripted podcast.
As to Form CRS, “firms should have filed it,” Cordisco said. “They have or should be in the process of delivering it to their customers and they should have policies and procedures and systems in place to deliver it going forward when the triggers are met and also to evidence that delivery.”
Jim Wrona, also with FINRA’s general counsel office, clarified on the podcast that when it comes to Reg BI, “any time you make a recommendation to a retail customer, the rule kicks in.”
Reg BI is “a really big deal for the industry — particularly the disclosure and conflicts obligation are new overarching obligations that the industry hasn’t dealt with in that broad sweeping manner,” Cordisco said. Form CRS requires brokers and advisors who offer services to file that form with the SEC and deliver a relationship summary, she added.
Now that the June 30 effective date has passed, “firms need to be in compliance with Reg BI,” Cordisco said. “They should have policies and procedures to account for Reg BI, system standards, and they should have trained their reps,” even in a virtual setting because of the pandemic.
Firms “had to switch gears to virtual training” because of COVID-19 and the work-from-home environment, Wrona added. “Firms were able to do that, by and large, and they should pat themselves on the back.”
FINRA, Wrona said, has also trained its examination and enforcement staff, “not only on understanding the obligations from a substantive standpoint but also understanding the approach that we want to take” to exams, including the “good-faith effort.”
