Journal of Financial Planning: September 2020
Financial advisers were required to have complied with Regulation Best Interest by June 30, 2020. Although no compliance deadlines were pushed back due to COVID-19, some leniency is afoot.
According to InvestmentNews, FINRA officials’ initial reviews on the new Securities and Exchange Commission rules will focus on whether your firm has policies, procedures, and training in place to show “good faith efforts” that you’re making moves to comply.
In the July 8 article “FINRA Officials Delineate ‘Good Faith’ Efforts to Comply with Reg BI,” InvestmentNews reported that FINRA isn’t going to be looking at whether firms did everything perfectly.
“We’re looking to see do they understand the obligations, and do they make a good faith effort to implement the changes that needed to be made and incorporate those in their policies, procedures, and training,” the article quoted Jim Wrona, FINRA vice president and associate general counsel as saying in a FINRA podcast available at finra.org/media-center/finra-unscripted/reg-best-interest-implementation.
The article also reported that the SEC examining firms for Reg BI compliance will not necessarily be standalone reviews; rather, most exams will be lumped into a brokerage’s regular exam.
As of this writing in late July as the exams kicked off, FINRA had filed a rule proposal with the SEC to allow broker-dealers until March 31, 2021 to complete office inspections, temporarily changing FINRA rule 3110. Bob Colby, FINRA’s chief legal officer, was quoted in the July 16 ThinkAdvisor article, “FINRA May Modify Rulebook, Supervision in Light of Virus,” suggesting that the new timeline still might not be enough due to office work disruptions caused by COVID-19.
In 2021, firms need to be prepared for a “harder line approach to looking for compliance,” according to a separate ThinkAdvisor article, “SEC Reg BI, Form CRS Exams to Start in July.”
Meanwhile, FPA has been a vocal critic of Reg BI, asserting that the regulation allows brokers to provide investment advice that amounts to financial planning without the costs and responsibilities of complying with the Investment Advisers Act of 1940. Read more in the cover story.