Compliance and Regulatory Alerts - 05-28-20
Reg BI & Form CRS Countdown: One Month to Go - Exams to Start July 1, 2020
The June 30th, 2020 implementation date for SEC Regulation Best Interest (“Reg BI”) and the corresponding Customer Relationship Summary (“Form CRS”) is only one month away.
Attention has turned to expectations for rule interpretation, regulatory examinations and enforcement. At a recent SIFMA panel discussion covering a host of priorities amid COVID-19, FINRA legal, risk and supervision executives focused on some of the immediate concerns regarding Reg BI and Form CRS.
Regulators described how Reg BI largely “took over” FINRA’s suitability rule, except as it relates to certain definitions and product categories, and they referred to proposed adjustments to the existing suitability and non-cash compensation rules in the context of Reg BI. (See Bates report on clarifications to the suitability rule here.)
On examinations, the regulators said that in the initial stage—the first six months after implementation—examinations on compliance with the new standards will focus on the approach to the policies, procedures and controls that firms have put in place. (See also Bates article on SEC exam guidance.) FINRA leaders expect that they will provide further guidance sometime in late 2020, after reviewing feedback from these initial examinations. Starting sometime in 2021, FINRA said it will be taking a “harder line” on supervisory practices in their examinations.
Enforcement regulators relayed that they would be following any findings from FINRA examiners, but that, initially, FINRA cases will be likely to concern matters that would otherwise have fallen under FINRA’s suitability rule (i.e. excessive trading) rather than looking for a “gotcha” moment on new Reg BI compliance. Further, the regulators commented that while FINRA will continue to track conflicting state fiduciary standards, they are not empowered to enforce, nor will they bring actions under, these standards. Bates will continue to monitor for developments.
For more information, visit Bates Compliance online at www.batescompliance.com and the Bates Reg BI service page, as well as our educational training center for Reg BI and Form CRS webinars on demand.
Interested in learning more about the kinds of issues compliance officers are addressing now? See our recent interview with Bates’ compliance leaders Robert Lavigne and Hank Sanchez.