What is Reg BI And How Does It Work?

Do you really act in what is considered best interest for your clients??

With so much focus being brought to Reg BI in recent months we wanted to remind you to check in on your firm’s standards of practice and make sure that they align with the expectations from the regulators.

But what is Reg BI and how does it affect your compliance procedures and what is required from your firm??

In technical terms…

The SEC's Regulation Best Interest (Reg BI) under the Securities Exchange Act of 1934 establishes a "best interest" standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.

Basically this all ties in with fiduciary duty, or a duty of care that is required as a financial service provided. But Reg BI codifies that to make it an enforceable rule for the regulators.?

So what does this look like in practice??

The SEC adopted rules and forms to require broker-dealers and investment advisers to provide a brief relationship summary, Form CRS, to retail investors. In addition, the SEC published interpretations concerning investment advisers’ standard of conduct under the Investment Advisers Act of 1940, and the "solely incidental" prong of the broker-dealer exclusion from the Advisers Act.

The Form CRS Relationship Summary will require registered investment advisers and broker-dealers to provide retail investors with simple, easy-to-understand information about the nature of their relationship with their financial professional.? While facilitating layered disclosure, the format of the relationship summary allows for comparability among the two different types of firms in a way that is distinct from other required disclosures.? Form CRS will also include a link to a dedicated page on the Commission’s investor education website, Investor.gov, which offers educational information about broker-dealers and investment advisers, and other materials.

And what does it look like if you break one of these regulations or requirements??

Well just as an example…

The SEC charged registered broker-dealer Western International Securities, Inc. and five of its registered representatives, with violating Best Interest Obligation regulations (commonly referred to as Regulation Best Interest or Reg BI) when they recommended and sold an unrated, high-risk debt security known as L Bonds to retirees and other retail investors. “Reg BI is clear: broker-dealers must act in the best interest of their customers,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement. “When they fail to do so, as we allege happened here, they put retail investors at risk and we’ll hold them accountable.”?

A charge like this could result in fines, penalties or even licenses and registrations being revoked!

If you need help getting your compliance processes sorted chat to our team today about how we can help make sure you stay out of the regulator’s firing line!?