During its first-ever review of compliance with Regulation Best Interest (Reg BI), the Financial Industry Regulatory Authority (FINRA) found significant numbers of broker dealers failing to achieve full compliance. By reporting the most common deficiencies, the agency presents a guide to help industry members focus their due diligence. RumbergerKirk partner Pete Tepley walks us through it.
The SEC’s 2019 adoption of Reg BI, which I wrote about in 2020, imposed a standard of conduct for financial advisers and other broker-dealers, as well as mandating additional transparency for clients. Under the Reg BI standard, broker-dealers and their associated persons (APs) may never place their own or their firm’s financial interests ahead of those of their retail customers.
More recently, in February 2022, FINRA published its first detailed examination of performance against Reg BI and related regulatory compliance. As that report makes clear, too many in the industry have failed to fully embrace or implement the requirements of Reg BI.
Recalling the fundamentals of Reg BI, when recommending a securities transaction or investment strategy or making account recommendations, firms and APs must meet four fundamental obligations relating to:
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