In preparation for the June 30, 2020, compliance date for the SEC’s Regulation Best Interest and Form CRS, FINRA has created a checklist to assist member firms in their efforts to comply with those requirements.
The checklist outlines the major requirements of the rules and notes key differences between FINRA rules and SEC’s Reg BI and Form CRS.
The Reg BI section includes a 20-point list addressing everything from updating policies and procedures to identifying and addressing conflicts of interest. Similarly, the Form CRS section includes an eight-point checklist running the gamut from information that must be included on the form to processes and procedures for updating and delivering the form.
The checklist explains, for example, that unlike FINRA’s suitability rule, SEC’s best interest standard explicitly applies to recommendations of types of accounts. “A broker-dealer (BD) or [associated persons] must have a reasonable basis to believe that a recommendation of a securities account type (e.g., brokerage or advisory, or among the types of accounts offered by the firm, including IRAs) is in the retail customer’s best interest at the time of the recommendation and does not place the financial or other interest of the BD or AP ahead of the interest of the retail customer,” the document states.
It further notes that when considering recommendations of types of accounts, consideration should be given to:
- services and products provided in the account;
- projected cost of the account;
- alternative account types available;
- services the retail customer requests; and
- the retail customer’s investment profile.
Adopted by the SEC on June 5, Reg BI establishes a “best interest” standard of conduct for broker-dealers and associated persons when making recommendations to a retail customer of any securities transaction or investment strategy involving securities. The Commission also adopted as part of that regulatory package a new rule to require broker-dealers and investment advisers to provide a brief relationship summary to retail investors, known as Form CRS.
As with other SEC rules, FINRA notes that it will examine for and enforce compliance with Reg BI, adhering to SEC guidance and interpretations. The organization also advises that it plans to review its rules to see whether changes are needed to align with the SEC’s rulemaking.
In addition to the checklist, other resources are available on FINRA’s Reg BI webpage.
