For US-regulated firms affected by the upcoming Regulation Best Interest (Reg BI) and concurrent Customer Relationship Summary (Form CRS), due to come into force on June 30, 2020, the pressure is on to comply – and it is looking as if the regulator has no plans to go easy on its targets.
The 2020 Examination Priorities document from the SEC’s Office of Compliance Inspections and Examinations (OCIE), released last week, warned that although the regulator was happy to engage with broker-dealers during examinations on their progress on implementing the new rules and answer questions they may have regarding the new rules prior to the deadline, after June 30 it intends to begin assessing compliance immediately, with no grace period.
“After the compliance dates, OCIE intends to assess implementation of the requirements of Regulation Best Interest, including policies and procedures regarding conflicts disclosures, and for both broker-dealers and registered investment advisors, the content and delivery of Form CRS,” says the SEC. The document also confirms that Reg BI and Form CRS will be 2020 examination priorities.
Reg BI was voted in by the SEC last year as part of an ambitious investment advice reform package. The new rules substantially upgrade existing suitability regulations to raise the standard of conduct for US-based broker-dealers, imposing rigorous new requirements to ensure firms are transparent and act in their clients’ best interest.
On Monday, the SEC-controlled Financial Industry Regulatory Authority (FINRA), which regulates brokerage firms doing business with the public in the US, also released its 2020 Risk Monitoring and Examination Priorities Letter. The outline follows the SEC with a new focus on Reg BI and Form CRS. In the first half of the year, FINRA plans to review firms’ preparedness for Reg BI to gain an understanding of implementation challenges they may face. After the June 30 compliance date, FINRA will examine firms’ compliance with Reg BI, Form CRS and related SEC guidance and interpretations.
“FINRA continues to identify new ways to provide firms with information they can use to assess and strengthen their compliance, supervisory and risk management programs,” says FINRA CEO Robert Cook. “To that end, this year’s Priorities Letter includes a list of practical considerations and questions that firms may use in evaluating these programs.”
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