Regulation Best Interest (Reg BI) Update


On June 28, 2022 FINRA released a podcast featuring Meredith Cordisco, Scott Gilbert, and Nicole McCafferty who is the Senior Director of FINRAs Financial Crimes Detection Program.

Below are our takeaways from the podcast and other recent news relating to Reg BI…


What is RegBI

Reg BI or Regulation Best Interest “establishes a best interest standard of conduct for broker-dealers and associated persons when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, including recommendations of types of accounts”.

FINRA views Reg BI as enhancing its suitability rules, consisting of four distinct obligations on broker-dealers and registered representatives – the disclosure obligation, the care obligation, the conflict-of-interest obligation, and the compliance obligation.  They emphasized that FINRA will be doing a “deeper dive” with respect to the standard of care obligation.  For broker-dealers and their registered reps, this means an increased focus and scrutinization of client profiles and communication to make sure recommendations are in the best interest of the client.


First Ever Charges for Violation of Reg BI Brought by SEC

On June 15, 2022, the SEC filed the first complaint in the U.S. District Court for the Central District of California for violation of Reg BI.  This is significant – until now, Reg BI complaints have been handled via FINRA arbitration.  Complaints in district courts by the SEC are criminal matters – much different.

The SEC complaint filed on June 15 provides a preview of what future Reg BI suits might entail.  This suit also confirms the SEC’s willingness to pursue individual registered representatives for Reg BI violations, which is important for bank and credit union wealth programs to know.


RegBI Claims Break into Top 15 Causes of Action in FINRA Arbitration

According to FINRA, claimants in FINRA arbitrations have filed over 40 Reg BI claims against broker-dealers and their registered reps through June this year, putting Reg BI claims in the top 15 of FINRA arbitration claims for the first time since the Rule has been introduced.

Clearly, Reg BI claims are trending upward and will represent a significant part of client arbitration cases in the future.


Protecting Your Bank and Credit Union Wealth Management Brand: 

  1. Talk to your wealth program manager.  Make sure he or she is well equipped and fully understands the importance of Reg BI and the internal shift that’s happening inside FINRA and the SEC.
  2. If you utilize a third-party broker-dealer, schedule a meeting with your broker-dealer’s regional director and discuss what the broker-dealer’s compliance department does to protect your licensed advisors and bankers. Your financial institution should have indemnification clauses built into your broker-dealer agreement, but you do not want that as your fallback position.
  3. Work with a firm like Compass Consulting. We (and others like us) offer another layer of protection for your financial institution and we provide counsel on additional areas of concern such as compensation, incentive compensation, and policies and procedures.  We also help make sure your broker-dealer is providing the type of support you need to avoid compliance issues and grow your wealth business.


To learn more about Compass Consulting’s services, visit our website www.compassconsulting.com or call 760-477-1299.

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