SEC Stands Fast on Reg BI and Disclosure Form Deadline
Despite retail brokerage industry pleas to delay the start of the new Regulation Best Interest standard of broker conduct because of the coronavirus pandemic, the Securities and Exchange Commission said Thursday it is sticking with the June 30 deadline.
In the ten months since the regulator unveiled the new standard and a companion requirement to send customers a summary of expected services and charges, firms “have made considerable progress” in adjusting their business practices, policies and procedures to meet the new requirements, Clayton said.
The SEC, for its part, “is functioning well in a mandatory telework environment” and is working closely with the Financial Industry Regulatory Authority to ensure consistency in examining firms and advisors for compliance with the new requirements, he said.
Less than two weeks ago the Financial Services Institute, a trade association for independent broker-dealers, urged the SEC to delay enforcing Reg BI, saying its members were concerned that the “unprecedented” virus crisis would impede their ability to implement compliance programs and training.
Clayton’s statement said the SEC believes that “firms with account relationships comprising a substantial majority of retail investors” are well along in their preparations.
But the regulator offered reassurance that it will be sensitive to operational issues and urged firms unable to make filings because of Covid-19 disruptions, including those related to national, state or local health and safety directives, to contact the SEC. “I expect that the Commission and the staff will take the firm-specific effects of such unforeseen circumstances (and related operational constraints and resource needs) into account in our examination and enforcement efforts,” he wrote.
Examiners will focus on whether firms have made good-faith efforts to implement policies and procedures necessary to comply with Reg BI, he said.
“We are encouraged by today’s comments,” FSI General Counsel David Bellaire said in an e-mail. “This will assist our members as they help Main Street investors navigate these uncertain times while continuing to work diligently to comply with Reg BI.”
The American Securities Association, which represents regional brokerage firms, applauded the statement.
“Firms are doing and will continue to do everything they can to prepare for the implementation date given the circumstances,” Chris Iacovella, chief executive of the ASA, said in a prepared statement. “We appreciate the SEC being flexible as the process continues.”
Enforcement efforts will initially focus on whether firms are making good faith efforts to comply, Clayton said.
The agency’s Office of Compliance Inspections and Examinations also will issue “in coming days” two risk alerts to aid firms in understanding the scope and content of initial examinations for Reg BI and Form CRS (Customer Relationship Summary) compliance.
Reg BI, which some investor advocates have criticized as amorphously weak in specific protections, prohibits brokers from putting their own interests ahead of their customers.
Some states have sought to implement tougher fiduciary rules to plug gaps they see in the federal rule. Massachusetts began implementing its rule last month and is sticking with its September deadline for executing enforcement date, said a spokeswoman for Secretary of the Commonwealth William Galvin.