Reg BI Basic Requirements Firms Failed To Meet

  • Failing to Meet Basic Requirements
  • The Importance of Disclosures
  • Preparing for Increased Enforcement

It should not have come as a big surprise as there were warnings not too long ago that the Securities and Exchange Commission (SEC) was going to start cracking down on the Regulation Best Interest (Reg BI) after being relatively quiet on the rule since it went into effect. Yet, according to the Financial Industry Regulatory Authority’s (FINRA) 2022 Report on FINRA’s Examination and Risk Monitoring Program, some broker-dealers failed to meet some of the basic requirements set forth in Reg BI.

Reg BI imposes a heightened best interest standard on broker-dealers when recommending securities transactions or investment strategies. The FINRA report found that in 2021, many firms were making recommendations that were both excessive and not in the best interest of the retail investors. Additionally, many broker-dealers failed to update their current procedures and policies in order to comply with Reg BI and were especially lacking in compliance with the conflict-of-interest obligation. 

Bottom line, broker-dealers must have policies and procedures in place to identify and adequately address conflicts of interest — and if the current home for your business is not on the correct side of this rule, it may be a sign that it’s time to look for a new and better one.

The other basic Reg BI requirement that broker-dealers failed to meet last year centered around insufficient disclosures. Firms are required to provide customers with disclosures of all material facts related to the scope and terms of their relationship, as well as any conflicts of interest associated with the recommendation. Most notably, firms failed to provide disclosure on material fees and their Form CRS greatly deviated from the instructions given by the SEC.

While the FINRA’s report highlighted the requirements many firms failed to meet, it also noted what is expected to be the focus in the coming year. As Reg BI enters into its second year, regulators are done cutting firms slack and will begin taking enforcement actions against those that fail to comply. You need to be sure your current broker-dealer is not in the crosshairs of regulators’ increased enforcement efforts.

In light of the FINRA’s report and with enforcement of Reg BI starting to heat up, it’s time to take a good look at your broker-dealer and see if they’ve taken the necessary steps to stay compliant and meet even the most basic Reg BI requirements. If you’re worried that your firm won’t be up to par, it might be worthwhile to look into finding another home for your business. 

3xEquity is here to keep your best interest at heart and help you find a new and better home for your business. We can secure you multiple offers from top national and regional broker-dealers in just a few days — all while you stay anonymous. From there, we’ll help you understand the nuances of the offers and ensure that you end up in a place that makes sense for your business.

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