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Regulation and Compliance > Federal Regulation > FINRA

Reg BI Makes FINRA's Top Customer Arb List, a First

By Melanie Waddell

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What You Need to Know

  • Through May, 37 arbitration cases involved Reg BI breaches.
  • In 2022, firms can expect that FINRA will “be doing deeper dives with respect to the standard of care obligation.
  • The SEC brought its first Reg BI enforcement action on June 16 against a registered broker-dealer and five of its reps.

Arbitration cases related to the Securities and Exchange Commission’s Regulation Best Interest have, for the first year, made the Financial Industry Regulatory Authority’s top dispute resolution list.

Through May 2022, breach of Reg BI comes in at No. 14 on FINRA’s most recent dispute resolution statistics under the category Top 15 Controversy Types in Customer Arbitrations.

Through May, 37 arbitration cases involved Reg BI breaches.

Brian Rubin, partner at Eversheds Sutherland in Washington, told ThinkAdvisor Monday that with the implementation date for Reg BI kicking in about two years ago, “it takes a while for cases to bubble up.”

“Given its breadth, I expect that it will soon be in the top 5 because [Reg BI] can encompass controversies currently in the [FINRA] top 10, like breach of fiduciary duty, failure to supervise, misreps, suitability and omissions.”

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.

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

The brokers violated best-interest obligations when they recommended and sold an unrated, high-risk debt security known as L Bonds to retirees and other retail investors, the SEC said.

Melanie Waddell

@Think_MelanieW

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