FINRA Advises Member Firms to Submit Questions to the SEC on Regulation Best Interest
FINRA advises broker-dealers about the SEC's recently adopted Regulation Best Interest and solicits implementation questions.
On August 7, 2019, the Financial Industry Regulatory Authority ("FINRA") issued a Regulatory Notice (the "Notice") intended to advise broker-dealers about the Securities and Exchange Commission's ("SEC") recently adopted Regulation Best Interest ("Reg BI") and to encourage firms to submit any implementation questions to the SEC in preparation for Reg BI's upcoming June 30, 2020, compliance date. Reg BI requires, among other things, that broker-dealers providing recommendations to retail customers act in their customers' best interest. (For additional information about Reg BI, please see the Jones Day Commentary "Final Rule on Regulation Best Interest Now Complete.")
The Notice particularly reminds member firms of Reg BI's requirement that broker-dealers and investment advisers prepare a Client Relationship Summary ("Form CRS") detailing their relationship with customers and any possible conflicts, as well as disclosures relating to products and registered representatives. Each Form CRS is limited to a maximum of two pages for firms registered only as broker-dealers, and four pages for dual registrants that are preparing a single summary for brokerage and advisory services. FINRA notes that the SEC has formed a committee consisting of SEC staff—including representatives from the Divisions of Investment Management and Trading and Markets and the Office of Compliance Inspections and Examinations—to answer questions about Reg BI. FINRA includes in the Notice links to additional resources, such as the SEC releases and interpretations concerning Reg BI, and notes that it has established a website about Reg BI that it intends to populate with content "as appropriate." FINRA also plans to hold meetings with firms and to convene workshops about the new requirements.
Although brief, the Notice is noteworthy because it demonstrates FINRA's interest in ensuring that broker-dealers reach out to both the SEC and FINRA with questions about any issues encountered while reviewing their business practices in preparation for compliance with the new regulation and disclosure obligations. Given that the regulators are soliciting questions, broker-dealers may want to consider taking this opportunity to seek guidance from experienced counsel in determining whether and how to pose inquiries about their Reg BI implementation efforts, including those related to preparing Form CRS, as well as meeting the rule's care, compliance, and conflict of interest requirements.
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