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SEC Needs Budget Boost to Enforce Reg BI: IRI to Senators

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What You Need to Know

  • An annuity industry trade group is urging senators to provide sufficient funding for oversight and enforcement of Reg BI and Form CRS.
  • The SEC wants to increase the number of examiners overseeing broker-dealers’ compliance.
  • The SEC on June 16 levied its first Reg BI enforcement action against a registered broker-dealer and five of its registered reps.

The Insured Retirement Institute is urging senators to provide sufficient funding for the Securities and Exchange Commission so that the agency can “effectively oversee” the industry’s ongoing implementation of and compliance with Regulation Best Interest and Form CRS, the Customer Relationship Summary.

The IRI is an advocacy group representing the annuity industry.

In a recent letter to Sens. Chris Van Hollen, D-Md. and Cindy Hyde-Smith, R-Miss., the chair and ranking member, respectively, of the Subcommittee on Financial Services & General Government of the Senate Appropriations Committee, Wayne Chopus, IRI’s president and CEO, said that the group supports both regulations, which require broker-dealers and their registered reps “to always act in their clients’ best interest without putting their own interests ahead of their clients.”

The rules, Chopus said, “also ensure that investors have the information they need to make informed decisions when choosing a financial professional and whether to follow investment advice from their chosen advisor.”

The House Appropriations Committee is considering the SEC’s fiscal year 2023 budget this week. The 2023 fiscal year starts on Oct. 1.

The bill includes $2.2 billion, an increase of $207 million — or 8% — above the FY 2022 enacted level, for the SEC to monitor the capital and securities markets, ensure full disclosure of appropriate financial information and combat financial fraud and malpractice.

SEC Chairman Gary Gensler told lawmakers on May 17 that the agency would use an 8% increase in its budget to support a 5% increase in examiners to oversee advisors, but needs more examiners to oversee broker-dealers’ compliance with Reg BI.

A vote by the full House on the SEC budget is expected in the coming weeks, according to IRI.

The SEC on June 16 levied its first Reg BI enforcement action by charging registered broker-dealer Western International Securities Inc. and five of its registered reps with violating Reg BI through L Bond sales.

The Financial Industry Regulatory Authority said on June 30 that it conducted more than 570 firm exams since the Reg BI went into effect in June 2020, through the end of 2021.

In 2022, firms can expect that FINRA will “be doing deeper dives with respect to the standard of care obligation, with more testing of what do the recommendations really look like, vis- à-vis the best interest of the customer and their client profile,” Scott Gilbert, vice president of Risk Monitoring at FINRA, said on a recent FINRA podcast.