SEC Reveals Focus of Examinations for Compliance with Regulation Best Interest

The Securities and Exchange Commission (SEC) continues to share information on its plans to gauge compliance with Regulation Best Interest (Reg BI), the soon-to-be-effective SEC guidance intended to govern relationships between retail investors and broker-dealers.

Initial insight was provided in a public statement issued on Thursday, April 2, when SEC Chairman Jay Clayton confirmed that the June 30, 2020, compliance date for Reg BI would not be postponed, despite business disruptions as the nation deals with the coronavirus (COVID-19) pandemic.

The overarching principle of Reg BI is that investment professionals should not put their interests ahead of their clients’ and customers’ interests. In tandem with Reg BI is a requirement to provide a new Form CRS, Relationship Summary, with information on the investment firm, services a retail client will be receiving, and how a client will be charged for those services.

In a press release issued Tuesday, April 7, the SEC’s Office of Compliance Inspections and Examinations (OCIE) offered more detail on the focus of its examinations of compliance with Reg BI and new Form CRS. Examinations will look for the following.

  • Evidence that there has been a good faith effort to implement policies and procedures to comply with Reg BI
  • Evidence that the broker-dealer has made a good faith effort to comply with new Form CRS requirements, including filing Form CRS with the Department of Labor, and delivering to existing and new investors

The OCIE news release noted that compliance examinations would be “taking into account firm-specific effects from disruptions caused by COVID-19.”