The Securities and Exchange Commission has put to rest any rumors that it might delay the compliance date for its Regulation Best Interest package of rulemaking.
Rumors had been circulating that the SEC might delay the compliance date considering the disruptions caused by the COVID-19 pandemic. But in an April 2 statement, Chairman Clayton advised that the Commission believes that the June 30, 2020, compliance date “remains appropriate.”
Clayton explained that since the Reg BI package of rulemaking was adopted on June 5, 2019, the SEC has engaged in an extensive outreach effort with broker-dealers, investment advisers, retail investors and other market participants, as well as FINRA and other regulatory partners, regarding the implementation of Reg BI and Form CRS.
“We believe firms with account relationships comprising a substantial majority of retail investor assets have made considerable progress in (1) adjusting their business practices, (2) supplementing and modifying their policies and procedures, and (3) otherwise aligning their operations and preparing for the requirements of Reg BI and the obligation to file and begin delivering Form CRS,” the chairman observed.
“Based on that engagement—and because the continued implementation of these conduct and transparency initiatives, individually and collectively, will significantly benefit Main Street investors—we believe that the June 30, 2020 compliance date for Reg BI and other requirements, including the requirement to file and begin delivering Form CRS, remains appropriate,” Clayton stated.
The statement goes on to explain that firms should continue to make “good faith efforts” around operational matters, as outlined in the announcement, to ensure compliance with Reg BI and Form CRS by June 30, including “devoting resources as necessary and available in light of the circumstances.”
In the event a firm is unable to meet the requirements because of COVID-19 disruptions, including as a result of national, state or local health and safety directives, the SEC advises that firms should engage with the Commission. “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,” the Chairman advised.
Clayton further noted that the SEC is “functioning well” in a mandatory telework environment, with staff continuing to work on Reg BI examination scoping. He adds that staff also continues to work closely with FINRA to help ensure consistency in examining firms and related persons for compliance with Reg BI and Form CRS.
The statement further notes that the SEC’s Office of Compliance Inspections and Examinations plans to soon issue two Risk Alerts providing additional information. One will provide BDs with information about the scope and content of initial examinations for Reg BI, while the other will provides BDs and investment advisers with information concerning Form CRS.
An SEC resource page with information on Reg BI, Form CRS and related interpretations is available here.
Reg BI Suit Still Pending
On a related note, it’s worth reiterating that a consolidated suit filed against Reg BI is still pending before the U.S. Court of Appeals for the Second Circuit.
The two suits were filed in September 2019 in the U.S. District Court for Southern District of New York within 24 hours of each other. The first was filed by eight Attorneys General who challenged the SEC’s Reg BI for allegedly “failing to meet basic investor protections that were laid out in the historic 2010 Dodd-Frank Act.” A second, similar suit was filed by the XY Planning Network, a financial planning platform cofounded by Michael Kitces.
The SEC on March 3 pushed back in its response to the suits filed, arguing that the plaintiffs lack standing and desire an outcome beyond that dictated by the law. A response by XYPN and the Attorneys General is expected shortly. The Second Circuit is still hearing cases currently, but it’s not clear whether the COVID-19 pandemic will have any impact on the timing of this case.
