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Reg BI Is Here. What’s the SEC Doing Now?

Reg BI has passed its compliance date of June 30, 2020. The SEC and FINRA have commenced examinations to test brokerage firms’ good faith compliance with Reg BI and Form CRS disclosure satisfaction. Our article “Have No Fear, Reg BI Is Finally Here” provides a brief overview of Reg BI and deciphers its implications for brokers and broker-dealers. It also provides an overview of a recent Risk Alert drafted by the SEC’s Office of Compliance Inspections and Examinations (OCIE), and examines the SEC’s and FINRA’s review of Reg BI compliance.

Read the article.

Comparing the Standard of Conduct: Broker-Dealers vs. Investment Advisers

The SEC’s standard of conduct for broker-dealers under Regulation Best Interest (Reg BI) became effective on June 30, 2020. While registered investment advisers (RIAs) always have been subject to a best interest standard of conduct (i.e., the overarching standard that encompasses both the duty of care and the duty of loyalty), the SEC’s clarification of that standard in its Interpretation Regarding Standard of Conduct for Investment Advisers (the RIA Interpretation) has  been in effect since July 12, 2019. There are similarities in these two standards, but there are significant differences as well. Here is how the two standards compare:

Continue reading “Comparing the Standard of Conduct: Broker-Dealers vs. Investment Advisers”

SEC Releases SCSD Self-Reporting Initiative Settlements

The SEC recently announced its first round of settlements with registered investment advisors (RIAs) who had self-reported pursuant to the agency’s Share Class Selection Disclosure Initiative (SCSD Initiative). Additional RIA settlements pursuant to the SCSD Initiative are expected, and RIAs who did not self-report face additional scrutiny from the Division of Enforcement. Industry reaction has involved frustration, but the SEC’s focus on RIA conflicts of interest, disclosures, and more recently revenue sharing is increasing.  Jim Lundy and Mary Hansen discuss these developments in this article, SEC Releases SCSD Self-Reporting Initiative Settlements.

SEC’s 2018 Exam Priorities – Worth the Wait

The SEC’s Office of Compliance Inspections and Examinations (OCIE) released its 2018 National Exam Program Examination Priorities on February 7, 2018 (“2018 Priorities Letter”). While issued later than in years past and almost a month to the day after the publication of the priorities letter from the Financial Industry Regulatory Authority (FINRA), OCIE deserves credit for the increased transparency and guidance provided in the 2018 Priorities Letter. By way of perspective, OCIE’s sixth publication of its examination priorities more than doubled the amount of information provided in last year’s edition. This improved transparency is consistent with the public statements of OCIE’s Director. Despite the greater detail, there appears to be one glaring omission: OCIE does not discuss how the anticipated rulemaking by the Commission regarding the development of a fiduciary standard may impact its priorities. However, upon further consideration and recalling that OCIE’s primary mission is to conduct examinations to assess compliance with the current securities laws, we realize it would have been premature for OCIE to discuss views on some yet-to-be formulated SEC fiduciary standard. That said, OCIE is clearly prioritizing the protection of retail investors even more than in years past, which is consistent with the SEC Chairman’s public statements about prioritizing the protection of “Main Street” investors. While the SEC Chairman has made these issues a “Main” priority, the SEC’s heightened focus regarding retail and retirement investors has been strengthening significantly since the Retirement-Targeted Industry Reviews and Examinations (ReTIRE) Initiative announced a few years ago and through the SEC’s announcement this past autumn of the Retail Strategy Task Force. Thus, OCIE leads into the 2018 Priorities Letter in the second and third sentences by opening with: “…we will continue to prioritize our commitment to protect retail investors, including seniors and those saving for retirement. We will especially be looking closely at products and services offered to retail investors, as well as the disclosures they receive about those investments.” This focus is similar to the focuses emphasized by FINRA in its recent priorities letter. Continue reading “SEC’s 2018 Exam Priorities – Worth the Wait”