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More Reg BI Actions May Be Ahead: SEC Enforcement Chief

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More enforcement actions related to Regulation Best Interest may be on the horizon, according the Securities and Exchange Commission’s enforcement director, Gurbir Grewal.

During an exchange with House Financial Services Committee Chairwoman Maxine Waters, D-Calif., at a hearing held Tuesday by the House Financial Services Subcommittee on Investor Protection, Entrepreneurship and Capital Markets, Grewal stated when speaking of the agency’s first Reg BI enforcement action that the agency’s exam division has made “other referrals.”

Waters highlighted the SEC’s first Reg BI action and then asked Grewal to “describe your experience in enforcing Regulation Best Interest [and] also address, if at all, how broker-dealers have changed their practices, how are they better managing conflicts of interest, for example? Do they offer the same kinds of products, and get paid at the same level, … prior to Reg BI?”

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

Grewal responded that after Reg BI became effective on June 20, 2020, the agency began educating the market and then the agency’s exam division conducted exams “with a priority focus of looking at Reg BI compliance.”

That examination process, he continued, “yielded a number of referrals, including … our first Reg BI action … There are other referrals. The exam division in its 2022 priorities has also indicated they will be going out to look for [Reg BI] compliance and to answer the question raised: Is it having its intended effect?”

Grewal added that his hope is that “with enforcement actions and compliance that it [Reg BI] is having its desired effect in the market.”