SEC & FINRA Regulation Best Interest Enforcement Bags First Victims

FINRA has carried out more than 600 firm exams since the implementation of Regulation Best Interest (Reg BI) in June 2020. Exactly a year later, the Securities and Exchange Commission (SEC) filed its first complaint involving a Reg BI-related violation against a licensed broker-dealer and five of its registered representatives. Since May 2022, a total of 37 Reg BI-related violations have been made. 

After a year of “educating the market,” the SEC is now turning its attention to examinations, “with a priority focus of looking at Reg BI compliance.” Gurbir Grewal, Enforcement Director for the SEC, warns that more Reg BI enforcement proceedings are likely to follow, as the SEC says that it yielded “a number of referrals” this year.  

With a total of 37 Reg BI-related violations so far, the topic has moved into FINRA Dispute Resolution’s list of its top-15 controversy types.

It’s clear that the SEC is now prepared, willing, and able to bring Reg BI cases against firms and reps. Here are the top-six Reg BI-related complaints, in order from most to least common, thus far:

  1. breach of fiduciary duty
  2. negligence 
  3. failure to supervise 
  4. breach of contract 
  5. misrepresentation 
  6. suitability 

SEC Releases New Reg BI Guidance

In March 2022, the SEC released a guidance bulletin regarding Reg BI that primarily focused on rollovers. Nearly five months later, the SEC finally put out another bulletin — this time warning brokers-dealers and RIAs to ensure that any and all conflicts of interest between their business models and business relationships have been reviewed and addressed. 

Contact us today at (303) 952-4025 for a complimentary consultation!

After digesting the new guidance, Micah Hauptman, Director of Investor Protection for the Consumer Federation of America, cautions firms and financial professionals to handle all of their conflicts of interest under Reg BI and the Advisers Act fiduciary standard by utilizing “a robust, ongoing process that is tailored to each conflict.” 

But some think that still won’t be enough for Enforcement. Although the new bulletin is “helpful in that it provides much greater detail and guidance for the ‘how’ aspect of getting into and maintaining compliance with these standards,” it still conflates Reg BI with the Fiduciary Standard. For example, what aspects of conflict mitigation are required for IAs under the fiduciary standard that is not required for BDs under Reg BI?

Enforcement Defense

Whether you’re a FINRA-registered representative, you’re an RIA registered with the SEC, or you have dual licensure, this recent enforcement crusade can pose a great risk to your public image, as well as your business as a whole. 

If you ever find yourself under securities investigation due to a Reg BI infraction, customer complaint, or defamatory termination disclosure, AdvisorLaw can provide expert counsel. Protect your livelihood with the best. Contact us today for a complimentary consultation with an experienced attorney. 

Our compliance specialists and securities attorneys can also provide comprehensive compliance consulting, including guidance concerning ongoing compliance, Form CRS/ADV, cybersecurity, exam preparation, the SEC’s new marketing rule, and much more.

Contact us today for a complimentary consultation with an experienced attorney, or give us a call at (303) 952-4025.

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