Conference panel speakers at the FINRA Annual Conference suggested that the final rule on Regulation Best Interest, or “Reg BI,” may be adopted as early as the week of June 3rd, 2019 (the vote has been scheduled for June 5, 2019). Comments by regulators and others on the panel discussing FINRA’s suitability rule 2111 and the SEC’s proposed Reg BI, suggested that the final rule may also come with a relatively short implementation period, possibly as soon as the end of 2019.
The financial services industry has been awaiting the final rule from the SEC, initially proposed in April of 2018, in part based on the authority provided by Section 913(f) of the Dodd-Frank Act. The SEC received over 6,000 comment letters to the proposal.
Through Reg BI, the SEC seeks to strengthen the standard of conduct required of a broker-dealer by requiring that all recommendations be made in the “best interest” of the customer, without putting the financial or other interests of the broker-dealer ahead of the interests of the customer. It also seeks to eliminate, through disclosures, any confusion clients may have about the nature of their relationship with their investment professional. The SEC stopped short of requiring a full fiduciary standard for broker-dealers, and instead opted for the broker to operate in the best interest of the client. Under Reg BI, as originally proposed, broker-dealers would be required to disclose their obligation, exercise reasonable diligence around products and recommending them to customers and establish procedures to identify and disclose conflicts of interest.
In the absence of an SEC regulation, several states have proposed their own fiduciary standards, which would add a host of additional compliance requirements to inter-state broker-dealers. Also potentially adding to the complexity of broker compliance, the Secretary of Labor told Congress that his Department will revive its Fiduciary Rule that was struck down by the courts last year, and they would take into account the new SEC Reg BI. The DOL Fiduciary Rule would apply to investment professionals who advise ERISA covered accounts.
Be on the lookout for another post from Oyster as soon as the rule becomes effective. Oyster has been closely monitoring the proposed rules and can assist clients with the preparation of policies and procedures, disclosure documents and training to ensure you are ready to comply with new guidelines within the proposed time frame.