Published on Jun 5th, 2023 |

Reg BI May Be A Major Source Of Future Enforcement Action

Vigilant Insights

Brief Introduction

Under Regulation BI (“Reg BI”), Firms are expected to act in the best interests of their customers. This requires full and fair disclosing, reasonable diligence when making recommendations, acknowledging conflicts of interest, and ensuring written policies and procedures are effective and enforced.

As arbitration claims to FINRA under Reg BI continue to increase, Firms should take steps now to limit their risk of potential compliance violations.

6 Tips for Staying Compliant with Reg BI

6 Tips for Staying Compliant with Reg BI

  1. Implement proper recordkeeping practices that address Reg BI disclosure requirements, which typically involve recording the basis for customer recommendations.
  2. Train employees at least annually on staying compliant with Reg BI and any SEC recommendations.
  3. Broker Dealers should not use Adviser or Advisor in their titles if they are not also registered as Investment Advisors.
  4. Firms that act as Registered Investment Advisers (“RIAs”) and Broker Dealers should have clear disclosures that explain to their customers whether they are making recommendations as an RIA or a Broker Dealer.
  5. Limit compensation models for Brokers that create inherent conflicts of interest, especially when the Firm offers affiliated products.
  6. Create written policies that enforce Reg BI and provide proper supervision by senior management.

SEC and FINRA Actions Related to Reg BI

SEC and FINRA Actions Related to Reg BI

  • The SEC’s first enforcement action related to Reg BI occurred in June 2022.
  • Nearly thirty claims were settled against Broker Dealers and RIAs for failing to file Form CRS that has similar disclosure requirements to Reg BI.
  • FINRA also had its first enforcement against a Broker for recommendations that were “excessive” considering the client’s investment profile.

Vigilant's Conclusion

Vigilant’s Conclusion

As Reg BI enforcement actions continue in the future, Firms should thoroughly assess their policies and procedures in relation to Reg BI.

In a dynamic regulatory environment going through a significant number of changes, it can be difficult to know what is considered best practice when industry standards must adapt to record setting rule and amendments proposals from the SEC.

Vigilant provides ongoing, end-to-end compliance support solutions, including a gap analysis of your Firms policies and procedures. Reach out to us today if you have any questions.

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