Broker-dealers continue to watch how the SEC and FINRA interpret and enforce Regulation Best Interest (Reg BI) and Form CRS. On October 26th, the SEC hosted a roundtable to share their observations on how the regulation has gone since its June 30th implementation.
The event consisted of opening remarks by SEC Chairman Jay Clayton, two panel discussions with representatives from OCIE and FINRA, and closing remarks from OCIE Director Peter Driscoll.
At the onset, Jay Clayton mentioned they are seeing "good faith" efforts by firms to comply with the regulation but have concerns about lack of disciplinary disclosures. An August 29th WSJ article exposed a lack of disciplinary disclosure, which has caused many of these concerns. While it seems adherence to Form CRS troubled some bad actor firms, the panelist remarked that most firms are making progress towards adhering to the four RegBI obligations; care, compliance, conflicts of interest, and disclosure.
Suggestions from the panelist included ensuring that firms offer more training to advisors and staff in an effort to improve the understanding of the compliance measures. Time will tell how the regulation is interpreted by the financial community and enforced by the SEC and FINRA. Another aspect of “time will tell” is regarding how the new administration will treat the regulation. At the minimum, the regulation is expected to be defined and enforced more strictly with the Biden administration. While there is a possibility to replace the regulation (and possibly create a new one to look and feel more like the DOL Fiduciary rule that RegBI replaces), the time to review and implement is extensive. Firms that went through efforts to adapt technology to comply with the DOL might have déjà vu.
While the regulation's future is unknown, what is expected from brokers is continued adherence and improvement to data and document management. All in the effort to improve the clients (and regulators) understanding of delivering advice with the client’s best interest in mind. As discussed in Celent's report: Up and Running: Day 2 Industry Responses To Reg BI, "Regulation based on principle will generate uncertainty; such are the challenges of interpretation." With enforcement from the SEC and FINRA expected to increase in strictness, expect BDs to continue to leverage technology to solve staying compliant.
As the regulation evolves with the new administration, Celent continues to keep an eye on where technology is supporting. Niche solutions, front-to-back, and multi-specialists all play a varying role in supporting financial institutions. Join me, Dan Latimore, and the InvestorCOM team to review Day 2 of Reg BI during Investom's November 19th webinar. Details to register can be found here.
We are looking forward to the discussion at 3:00 PM EST next Thursday!