Reg BI Implementation Going Well Despite COVID - The Industry Spread

Michael Volpe

After spending a decade in finance, Michael Volpe has been a freelance investigative journalist since 2009. His work has been published locally in the Chicago Reader, Chicago Crusader, Chicago Heights Patch, and New City. Nationally, Volpe's work has appeared in a wide variety of publications including the Washington Examiner, the Daily Caller, Crime Magazine, the Southern Christian Leadership Conference Newsletter, and Counter Punch. Volpe has been recognized by whistleblowers as leading the charge in getting their stories out. His first book Prosecutors Gone Wild was published in October 2012, his second book The Definitive Dossier of PTSD in Whistleblowers was published in February 2013 and his third book Bullied to Death was published in August 2015.

FINRA

Reg BI Implementation Going Well Despite COVID

July 11, 2020

Despite challenges from coronavirus, American broker/dealers have done an admirable job implementing the new Regulation best interest.

Meredith Cordisco and Jim Wrona are both members FINRA’s Office of General Counsel and they were the latest guests on FINRA’s podcast, Unscripted.

Cordisco and Wrona were on the podcast to talk about Regulation Best Interest, and it’s implementation by broker/dealers.

Wrona was asked specifically about how coronavirus affected the implementation.

“Yeah nobody expected a pandemic. And so, it has made it more difficult for everybody. Folks are working from home, which makes it more difficult to get your teams together and make sure that everything’s being done. Small firms, in particular, had to worry about third-party vendors that they were expecting to assist them. So, it could be that they needed a third-party printer to print up their Form CRS and Reg BI hardcopy disclosures that they were going to have to send out. And so, I think there was some angst about whether those third-party vendors could meet their commitments to our member firms because of staffing issues related to COVID-19.

“We are doing this podcast from our homes not because it’s more comfortable, but because we can’t go into the office. So, I think that the same way for firms that maybe we’re planning to have in-person training, all of a sudden at the last minute they had to switch gears to virtual training, which makes it difficult. If you’re planning to do that all along, it’s one thing, but if you have to switch at the very end right before the compliance date that’s a struggle. And firms were able to do that, by and large, and they should pat themselves on the back because I think everybody really stepped up and worked hard to make sure that they were in compliance or used all reasonable efforts to make sure that they were in compliance by that June 30th date.

“But yeah, there was a lot going on, and not to mention that I’m sure there were staffing issues at the firms because there were people either suffering from COVID-19 or that had loved ones that were. So, it’s really remarkable how well everybody did under the circumstances.”

Regulation Best Interest (BI) was adopted in June 2019, but it went into effect a year later.

“But Reg BI is a new standard of care for brokers and dealers and their associated persons when they make securities recommendations to retail customers. And that includes recommendations as to types of accounts. It has four core obligations. So, disclosure, care, conflict of interest and compliance.” Cordisco explained. “And it’s a really big deal for the industry, particularly the disclosure and the conflicts obligation are new, overarching obligations that the industry hasn’t dealt with in that broad sweeping manner. And care also has significant enhancements from the current structure. So, it’s a big deal for the BD industry.”

Wrona continued, “You know it’s interesting, because people will ask us, ‘well isn’t Reg BI really just suitability with some additional requirements?’ And if you look at just the care obligations–so one of the four that Meredith mentioned for Reg BI–the care obligation alone is like suitability on steroids. You have to consider cost every time you make a recommendation, reasonably available alternatives, it applies to types of accounts. Those are significant enhancements. And that’s only the care obligation. Then you get into disclosure. You get into conflicts of interest and particularly associated person-level conflicts that would have to be mitigated or eliminated. Those are quite different from what the industry has been used to just under the suitability regime.”

Cordisco continued with the explanation, “Well, it means that firms need to be in compliance with Reg BI to the extent that they make recommendations to retail customers. And what that means practically is they should have updated their policies and procedures to account for Reg BI. They should have made system changes to the extent necessary to account for the new standard and all of those things that Jim just mentioned, and they should have trained their reps, even if training is in a virtual setting now that we’re all home because of the pandemic.”

FINRA, the Financial Industry Regulatory Authority, is a self-regulatory organization. It was formed in 2007 when the regulatory arms of the NYSE and the NASD merged.

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