As the countdown to the June 30, 2020, date for compliance with Reg BI inches forward, FINRA and the SEC are providing a potpourri of support and information to help firms ensure compliance.
FINRA EFFORTS: FINRA’s northeast regional director announced in late October that FINRA will perform “preparedness reviews” of broker-dealers to determine firms’ readiness to comply with Reg BI. At its November Senior Investor Conference, FINRA President and CEO Robert Cook confirmed FINRA’s intention to perform these “stress tests.” . FINRA has emphasized that its intent is not to be punitive and fine firms for compliance violations. Rather, FINRA insists its primary goal is to assist firms in successfully implementing the nearly 1,000 pages of Reg BI’s regulations.
Continue reading “Reg BI Information Overload: The Countdown to June 2020 Continues with Planned Reg BI Stress Tests, Checklists and FAQS Courtesy of FINRA and the SEC”
On the heels of the SEC’s recent approval of the “Reg BI Package,” on June 26, 2019 the U.S. House of Representatives passed a bill that would prevent enforcement of Reg BI. Specifically, Rep. Maxine Waters included a last minute amendment to an appropriations bill that would prevent any funds from being used to “implement, administer [or] enforce” Reg BI.
While the bill was comfortably passed in the House, its prospects to pass in the Senate seem unlikely. Senators will have the opportunity to introduce their own version, which will then need to be reconciled with the House’s. As always, we will continue to closely monitor any developments concerning Reg BI, and will publish any updates.
To nobody’s great surprise, on June 5, the SEC approved the “Reg BI Package,” which includes a series of new standards governing the fiduciary responsibilities of broker-dealers and investment advisers. The approved items consisted of the Regulation Best Interest – Standard of Conduct for Broker-Dealers; Form CRS Relationship Summary; Standard of Conduct for Investment Advisers; and Interpretation of “Solely Incidental,” all of which seem likely to have considerable impact on the industry going forward.
Drinker Biddle’s Best Interest Compliance Team issued an alert summarizing the June 5th meeting, certain statements made by the commissioners, and examining the potential effects of the new standards.
Read the full client alert.
Last month the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued its “2019 Examination Priorities.” The release of OCIE’s 2019 Priorities this year was earlier than in years past. In retrospect, the date of issuance being the last day before the vast majority of the SEC staff was furloughed may just be coincidental, but the federal government shutdown allowed the industry more time to study OCIE’s 2019 Priorities for compliance planning for the upcoming year. Another impact of the shutdown and furloughs in an area directly related to OCIE’s first priority is that the SEC’s efforts and the timing of the finalization of the Reg BI proposals have very likely been slowed as well. The recent ending of the SEC furloughs and OCIE’s continuing prioritization of retail and retirement regulatory issues presents us with an opportune time to re-visit these important topics.
Continue reading “The Continuing Convergence of Retail and Retirement Regulatory Oversight”
As discussed regularly on this blog, the financial industry has seen a stream of rules and regulations in recent years that relate to the standard of care and management of conflicts for broker-dealers, investment advisers, insurance agents and companies.
The need for experienced counsel to help navigate the evolving and overlapping federal and state “best interest” obligations has increased. It’s the reason we’re excited to announce the launch of our Best Interest Compliance Team.
This interdisciplinary group of more than 20 lawyers consists of attorneys with experience across Investment Management, ERISA, SEC & Regulatory Enforcement Defense, Litigation/FINRA Arbitration, and Insurance Regulatory and Transactional practice areas.
The Best Interest Compliance Team will help clients make decisions about questions such as:
- What does the SEC’s proposed Regulation Best Interest mean?
- How does the SEC’s RIA interpretive guidance impact the standards currently applied to RIAs?
- What is the effect of the court order vacating the DOL’s Fiduciary Rule and what already-implemented changes will continue under the SEC proposals for RIAs and broker-dealers?
- How should written supervisory procedures be revised in light of these changes and proposals?
- What measures should be taken to show good-faith compliance with the DOL’s non-enforcement policy?
- Where should broker-dealers/RIAs/insurance companies go from here?
- How should insurance agents deal with conflicting state regulatory schemes?
To learn more about the new Best Interest Compliance Team, read our press release or visit our team page on the Drinker Biddle website.
MYTH: “Advisors must recommend the best available investment.”
We recently pointed out that under the DOL fiduciary rule, it’s a myth that advisors have to recommend the lowest cost investment. They don’t.
Here’s another myth about investment recommendations that isn’t true: advisors have to recommend the best investment to their customers. Presumably, this comes up because of the Impartial Conduct Standards in the Best Interest Contract Exemption (BICE). One of the requirements in those Standards is that a recommendation be in the best interest of the customer. This best interest requirement may lead some to think that advisors have to meet an essentially impossible standard. As with a lowest-cost recommendation, however, a mandate to recommend the best investment is a myth…it just isn’t true. Even the DOL has said so:
Continue reading “Fiduciary Rule Myths”
This is Part 2 of our post on important issues for broker-dealers during the extended transition period for the fiduciary exemptions. In Part 1, we discussed the need to develop written supervisory procedures under the Best Interest Contract Exemption (BICE) and the importance of engaging in – and being able to demonstrate – diligent and good faith efforts to comply with the exemptions.
Two other important issues are how to demonstrate compliance with the transition exemptions and the protections that are not afforded by the non-enforcement policy.
Continue reading “The Delay of the Fiduciary Exemptions: Now Is Not the Time to Relax (Part 2 of 2)”
Some broker-dealers may be tempted to view the DOL’s extension of the transition period for the fiduciary exemption to July 1, 2019, and the extension of the DOL and IRS non-enforcement policies, as an opportunity to relax and take a break from compliance issues for the next 18 months. Unfortunately, that could turn out to be a risky decision.
We are concerned that firms may not be paying sufficient attention to some of the most critical transition issues, including adoption of policies and procedures to ensure compliance with the Impartial Conduct Standards and taking affirmative steps to ensure diligent, good faith compliance with the rules.
Continue reading “The Delay of the Fiduciary Exemptions: Now Is Not the Time to Relax (Part 1 of 2)”
When a financial advisor moves from one broker-dealer to another, both the firm and the advisor want his or her clients to come along. When those clients have IRAs, any recommendations to the IRA investors are now subject to greater scrutiny. This is because, under the DOL’s new fiduciary advice rule, a recommendation to move an IRA from another firm is a fiduciary recommendation. And while this would ordinarily be a prohibited transaction under the Internal Revenue Code – because the broker-dealer and advisor will make money if the account is transferred but won’t if it isn’t – there is an exemption that permits the recommendation and any resulting compensation, if a number of conditions are satisfied.
Continue reading “Fiduciary Rules for the Transfer of IRAs”