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Regulation and Compliance > Federal Regulation

Reg BI Exams' Scope Has Been Expanded: FINRA’s Cook

By Melanie Waddell

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Welcome back to Human Capital. I’m Melanie Waddell, ThinkAdvisor’s Washington bureau chief.

This week, Robert Cook, president and CEO of the Financial Industry Regulatory Authority, is warning that the scope of Regulation Best Interest exams has been expanded. 

Gary Gensler was also confirmed by the Senate to be chairman of the Securities and Exchange Commission, and the Labor Department, now under the helm of Secretary Marty Walsh, issued guidance on the fiduciary prohibited transaction exemption. 

While the swearing in of Gensler is expected any day now, Politico’s Morning Minute reported Friday that Kevin Burris, the oversight and investigations director for House Financial Services Committee Chairwoman Maxine Waters, is leaving the Hill to join the agency as Gensler’s lead of legislative affairs.

Keep scrolling to see what Cook said during a recent event held by the Insured Retirement Institute that FINRA is finding in Reg BI and Form CRS exams 10 months after the compliance date and what FINRA expects of firms moving forward. 

Thanks for tuning in again as we spotlight the people shaping the financial regulatory landscape.

Don’t forget to listen in on the latest Human Capital podcast with Susan Schroeder, the former head of the Financial Industry Regulatory Authority’s enforcement division who’s now a partner at WilmerHale and vice chair of its Securities & Financial Services Department.

You can reach me at [email protected] or follow me on Twitter at Think_MelanieW.

‘We’re Really Expecting Nothing Shorter Than Compliance’

Early Reg BI exams zeroed in on broker-dealers’ “broad approach to implementation.” With some firms, “we thought they needed to provide more by way of training or more adequate training on both Reg BI and Form CRS for their staff,” Cook relayed.

However, “going forward, we’re really expecting nothing shorter than compliance with the rule, and that’s what we’re going to be looking for,” Cook warned.

FINRA will be looking to see if firms have implemented “policies and procedures that are designed to ensure compliance with Reg BI and Form CRS requirements,” Cook said. “That does mean an expanded scope” from what the BD regulator was looking at before.

Disclosure and conflict requirements are front and center, as well as compliance with the “care obligation” – do “recommendations comply with the care obligation?” Cook said.

These reviews will occur during normal cycle exams, Cook said, as well as some standalone exams. “Those could be initiated because of a ‘cause’ matter we might need to follow up on because a customer complained” or it was noticed in an arbitration proceeding.

The same is true for Form CRS. “We might also do an exam generated for cause,” Cook said.

The SEC has primary responsibility for interpreting Reg BI, Cook reiterated.

As to the Labor Department’s new fiduciary prohibited transaction exemption, the SEC has primary responsibility for coordinating with other federal agencies.

FINRA’s role “really is to help support that where appropriate, and then look to the SEC for guidance on how our oversight of broker-dealers in this [fiduciary/Reg BI] area should evolve, if at all, in light of what other agencies might do as they  … comply with statutes or adopt their own rules.”

At Press Time

House Ways and Means Committee Chairman Richard Neal, D-Mass., said Thursday that he’ll be moving through his committee “in the next few weeks” the Securing a Strong Retirement Act of 2020, commonly called Secure Act 2.0, which would boost the required minimum distribution age from 72 to 75.

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A new administration as well as new leaders at the helm of regulatory agencies and congressional committees sets up a slew of activity for advisors and broker-dealers to watch in the new year.

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Ed Slott’s Last-Minute Tax Tips

Bill Reintroduced to Shore Up Social Security, Medicare DOL Releases Fiduciary Rule Guidance

Melanie Waddell

@Think_MelanieW

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