Reg BI Enforcement Actions Coming Soon, ex-FINRA Enforcement Chief Says

Susan Schroeder, former chief of the Financial Industry Regulatory Authority’s enforcement division, told Human Capital Wednesday that she sees enforcement actions related to Regulation Best Interest compliance “coming soon” — likely this year.

“In terms of how aggressive they’ll [the Securities and Exchange Commission will] be, I guess it depends a bit on what we think of as ‘aggressive,’” said Schroeder, partner at the law firm WilmerHale and vice chair of its Securities & Financial Services Department.

“Early enforcement actions will be predicated on things like policies and procedures, but by past SEC standards, that is very aggressive.”

If early enforcement actions “are predicated on things like inadequate training or failures to have policies and procedures, from a legal theory perspective, that’s aggressive,” Schroeder said.

Will the SEC and FINRA work in tandem to bring enforcement actions?

“They will,” Schroeder said. “FINRA is empowered to enforce Reg BI as much as the SEC is.” That being said, “Reg BI is an SEC rule.”

FINRA “definitely will bring separate Reg BI actions without an SEC component,” Schroeder said.  “I think the SEC and FINRA will likely divide responsibilities in certain ways for Reg BI enforcement. I think that the SEC is more likely than FINRA to take the lead here” to initiate an enforcement action.

Don’t miss the next episode of our Human Capital podcast Friday to hear Schroeder’s thoughts on how soon an enforcement action will likely be levied, what Gary Gensler’s likely arrival as SEC chairman means for Reg BI, the likelihood of enforcement actions related to Form CRS and more.

Schroeder was head of FINRA enforcement from 2017 to 2019 and served as the deputy head of enforcement from 2011 to 2017.