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FINRA CEO Robert Cook

Regulation and Compliance > Federal Regulation > FINRA

More Reg BI Cases in the Pipeline, FINRA Chief Warns

By Melanie Waddell

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Robert Cook, president and CEO of the Financial Industry Regulatory Authority, said Friday that firms need to beef up their compliance with the Securities and Exchange Commission’s Regulation Best Interest, and noted that more Reg BI-related enforcement cases are in the pipeline.

Speaking at the ALI-CLE Life Insurance Products Conference in Washington, Cook said that FINRA’s Reg BI-related exams have been “evolving as [FINRA] has had more time with Reg BI and as firms have had more time” with the rule. FINRA exams will “continue to evolve in terms of expectations and the depth of what we’re looking for.”

Cook continued: “Anything that would be a violation of the old suitability standard is now going to be a violation under the Reg BI standard.”

FINRA’s suitability Rule 2111 still exists for non-retail customers, so where Reg BI doesn’t apply, suitability continues to fill the gap. However, Reg BI goes farther than suitability.

In fact, Cook said, FINRA has Reg BI-related cases “in the pipeline that straddle the two worlds, and they’ll probably be brought under both” the suitability and Reg BI standards.

FINRA issued its first Reg BI-related disciplinary move in mid-October by fining a former registered rep $5,000 and issued a six-month suspension.

On Friday, Cook offered the following areas where firms can improve their Reg BI compliance:

  • Train on the new requirements of Reg BI; don’t just put the requirements in policies and procedures.
  • Make sure policies and procedures reflect a “thoughtful approach” to evaluating the different risks by customer product and business activity. “Not every sale has the same degree of risk associated with it,” Cook said, so think about how to tailor the firm’s approach “to the risks that are involved with their business activity.”
  • Assess account type recommendations or reasonably available alternatives.
  • “Keep up with what the SEC expects,” Cook said. “A lot of the rule is principles-based; the SEC has been coming out with additional guidance.”

Melanie Waddell

@Think_MelanieW

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