Finra will be conducting Regulation Best Interest “preparedness reviews” of its member firms starting next month, William St. Louis, the SRO’s Northeast Region director for sales practice, revealed Tuesday.
“Obviously, we want to see where firms stand in advance of the June 30, 2020 compliance date,” St. Louis said at the Sifma Compliance and Legal Seminar in New York.
Reg BI requires brokers to comply with the best interest standard when making a recommendation of any securities transaction or investment strategy involving securities to a retail customer.
The SEC set June 30, 2020, as the compliance deadline for the implementation of the rule, which the regulator believes gives “sufficient time” for firms to comply with the requirements.
Broker-dealer firms need not worry about being caught up in compliance violations in the early days of implementing the SEC’s Reg BI — unless there are egregious circumstances that merit enforcement. Both the SEC and Finra have said they want to be as helpful as possible during the transition period.
St. Louis said Finra is “certainly working very closely with the SEC” on its Reg BI “examination plan.”
In particular, Finra has been having regular communication with the Trading and Markets Department and the Office of Compliance Inspections and Examinations of the SEC, St. Louis said.
“We’re very likely to have similar exam modules for Reg BI and training for our examiners. We're also going to compare schedules to make sure that we don't duplicate when we go into firms,” St. Louis said.
“Some consistency of approach is very important for such a significant rule at the outset,” he added.
John Polise, associate director of the broker-dealer and exchange program at the SEC’s Office of Compliance Inspections and Examinations, said in June that the goal is for the SEC and Finra to have “a uniform understanding and approach to Reg BI.”
“The point of what we’re going to be doing initially is never to do 'gotcha' exams … That’s not the point,” Polise said at a National Compliance Outreach event for broker-dealers in Chicago in June.
“The point is between now and the effective date, in the course of other examinations, we may very well ask, ‘What are you doing with BI [best interest], what are you thinking about with BI, and how are you thinking about approaching it?'” he added.
Meanwhile, St. Louis said Finra will be reviewing its own rule book, starting with its suitability and non-cash compensation rules.
Earlier this month, Robert Colby, chief legal officer of Finra, said the SRO is leaning toward keeping its suitability rule.