Closing out 2020, the SEC’s Division of Examinations (OCIE) issued a Statement on Recent and Upcoming Regulation Best Interest Examinations. There the Division of Examinations announced its intention “to begin its next phase [of Reg BI examinations] by conducting more focused examinations … beginning in January 2021.”
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In an unprecedented move, the U.S. Securities and Exchange Commission (SEC) released guidance on several platforms in a 30-day period in 2020 regarding certain views on the important role and potential liability risks of chief compliance officers (CCOs). The SEC’s focus on the role of compliance is not new but sometimes the SEC’s support for compliance has not appeared to extend beyond the SEC’s Office of Compliance Inspections and Examinations (OCIE). In this article, we analyze the guidance provided by each source.
Continue reading “The SEC’s CCO Guidance Month”
Welcome to the Broker-Dealer Regulation & Litigation Digest – a periodic compilation of the most popular blog posts from the Broker-Dealer Law Blog during the last few months. If you don’t already receive our posts, you can subscribe to the blog.
The Department of Labor (DOL) and the Securities and Exchange Commission (SEC) are focusing on rollover recommendations and their impact on plan participants. The DOL has historically taken the position that a recommendation by a fiduciary advisor is subject to the ERISA prudent man rule and the duty of loyalty (known in combination as a best interest standard), and has recently expanded the definition of who is a fiduciary advisor. The SEC says that rollover recommendations by investment advisers and broker-dealers are subject to its best interest requirements. This article discusses the recent DOL guidance and the SEC’s Regulation Best Interest (Reg BI).
The U.S. Securities and Exchange Commission (SEC) hosted a virtual roundtable in late October to discuss the Regulation Best Interest (Reg BI) and Form CRS. With a few months of observations from examinations since the June 30, 2020, compliance date, SEC and FINRA officials provided insights and tips for broker-dealer compliance with the new rules. The roundtable kicked off with brief remarks from SEC Chair Jay Clayton followed by a discussion among SEC staff from the Office of Compliance Inspections and Examinations (OCIE); and the Divisions of Trading and Markets and Investment Management. FINRA staff also participated.
The SEC’s Regulation Best Interest (Reg BI) applies to recommendations by a broker-dealer to “retail customers.” As the term suggests, a retail customer is a “natural person” (or the legal representative of a natural person) who uses the recommendation “primarily for personal, family, or household purposes.” This means that advice given to legal entities and advice related to investing the assets of a business are not covered by the regulation. But what about recommendations provided to retirement plans?
On October 8, 2020, the U.S. Securities and Exchange Commission (SEC) released a joint statement by SEC Chairman Jay Clayton and the SEC’s directors of the Division of Investment Management and the Division of Trading and Markets “Regarding New FAQs for Form CRS” (CRS FAQ Joint Statement). The CRS FAQ Joint Statement offers guidance to both broker-dealers and registered investment advisers (collectively, firms). The focus of this guidance addressed Form CRS disclosures regarding firm or financial professional disciplinary histories. Along with the CRS FAQ Joint Statement, the SEC modified and released its “Frequently Asked Questions on Form CRS” (Form CRS FAQs).
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.
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:
On June 26, 2020, the U.S. Court of Appeals for the Second Circuit issued its ruling on the challenge to the legality of the Regulation Best Interest final rule (Reg BI), promulgated by the U.S. Securities and Exchange Commission (SEC) under the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. As reported on June 2, 2020, the Second Circuit entertained oral argument. It issued its ruling late in the day on June 26, just prior to Reg BI’s June 30, 2020, implementation date two business days later.
The Second Circuit’s ruling had three holdings: (1) the individual investment adviser petitioner had standing to bring the petition to review, but the state petitioners did not; (2) section 913(f) of the Dodd-Frank Act authorized the SEC to promulgate Reg BI; and (3) Reg BI is not arbitrary and capricious under the Administrative Procedure Act (APA). We focus the analysis herein on the latter two holdings.