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Regulation and Compliance > Federal Regulation > SEC

Study Up! SEC Reg BI Bulletins Will Be Used in Exams, Compliance Pros Say

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While the bulletins on Regulation Best Interest from the Securities and Exchange Commission don’t create new rules, they will be used by examiners, top compliance officials warned Thursday.

During a panel session Thursday at the Financial Industry Regulatory Authority’s annual conference in Washington, Bob Colby, FINRA’s chief legal officer, queried top compliance and legal officers about what they learned from the bulletins and how should firms should be using them.

“Footnote 1 of every staff bulletin also the first paragraph of the FAQs is that [they] have no formal legal effect; it does not amend or alter Reg BI. It does not add new obligations or change any existing obligations,” said Evan Charkes, managing director and associate general counsel for Bank of America. “You have to keep that in mind as you’re absorbing all of the guidance that’s come out. That’s not to say to not take it serious. Do. But it doesn’t change Reg BI.”

Colby then asked: “So why read it?”

“Because it will be interesting over the years to see how the examiners, both from the SEC and from FINRA, look at that guidance and then say to all of us: ‘How come you didn’t do X? ‘It’s right here: question 4 says, ‘We suggest you do this.’ ‘Did you do this?’” Charkes responded. “I think that’s how it’s going to play out.”

In its new guidance, released in Q&A form on April 20, SEC staff focuses primarily on the Care Obligation of Regulation Best Interest for broker-dealers and the duty of care enforced under the Investment Advisers Act of 1940 for RIAs.

Charkes noted that in the most recent bulletin on Care Obligations — plural —  the SEC “is now imposing the Care Obligation on investment advisors. I thought that was intuitive, based on the duty of care and what a fiduciary has to do in general … but now they [the SEC] are very prescriptive about, as an investment advisor, you need to consider this as you develop alternatives in the advice that you’re giving.”

The bulletin is a “great tool,” added Peggy Ho, senior vice president and general counsel for Commonwealth Financial, and it should be looked at with Reg BI, “side by side. It’s essentially a roadmap to what people [examiners] are going to be focused on.”

Jennifer Grego, wealth management chief compliance officer for Morgan Stanley Wealth Management, added that the SEC staff guidance “is very helpful … in explaining that there is more to the rule and these are the questions we’re going to get when we are examined.”


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