OCIE Exam Guidance on Reg. BI & Form CRS

On April 2, Chair Clayton said the SEC would hold firm on the June 30 compliance deadline for Regulation Best Interest (“Reg. BI”) and Form CRS, but suggested early examinations might focus more on compliance efforts than results.  The SEC’s Office of Compliance Inspections and Examinations (“OCIE”) issued two April 7 Risk Alerts providing firms with guidance on what to expect during those early-phase examinations.

As expected, OCIE indicates its exams will focus on whether firms “have made a good-faith effort to implement policies and procedures reasonably designed to comply” with Reg. BI and to implement Form CRS.

Reg. BI, new SEC Rule 15l-1, was adopted June 5, 2019 (see Adopting Release, No. 34-86031) and imposes a new standard of conduct requiring broker-dealers to act in a customer’s best interest when recommending any securities transaction or investment strategy to retail customers.  Reg. BI comprises four distinct Obligations of (1) Disclosure, (2) Care, (3) Conflicts of Interest, and (4) Compliance.  The Risk Alerts set out the initial questions OCIE will be asking firms about their efforts toward compliance, together with some of the documents OCIE will review.

The Reg. BI Risk Alert is here.

The Form CRS Risk Alert is here.

On April 8, FINRA agreed.

Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Tom is licensed in Tennessee, Texas, and Louisiana. He has over 34 years of experience representing financial institutions in litigation, regulatory and compliance matters. See attorney profile.

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