Chairman Clayton also indicated that the Office of Compliance Inspections and Examinations will be issuing two Risk Alerts in the coming days.
Regulation Best Interest (Reg BI)—which sets forth a new standard of conduct for broker-dealers and their associated persons when making investment recommendations—was adopted by the SEC on June 5, 2019, and is scheduled to take effect on June 30, 2020. There was some question as to whether the SEC would push back the effective date due to the COVID-19 pandemic, but on April 2, SEC Chairman Jay Clayton issued a public statement that the SEC will hold to the June 30 deadline despite the ongoing emergency.
Reg BI requires that brokers act in their customer’s “best interest” (with related disclosure obligations) when making a recommendation of any securities transaction or investment strategy involving securities (including account recommendations) to a retail customer. SEC-registered investment advisers and SEC-registered broker-dealers (together known as “firms”) will also be required to provide retail investors and file with the SEC Form CRS, a brief customer or client relationship summary that provides information about the firm. Compliance with that requirement will also begin June 30.
The SEC statement noted that:
firms should continue to make good faith efforts around operational matters to ensure compliance by June 30, 2020, including devoting resources as necessary and available in light of the circumstances. To the extent that a firm is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19, including as a result of efforts to comply with national, state or local health and safety directives and guidance, the firm should engage with [the SEC].
Additionally, the SEC stated that its examination activities in the initial phase after Reg BI’s implementation will focus upon firms’ “good-faith” efforts at compliance, considering the facts and circumstances.
Chairman Clayton also indicated that the Office of Compliance Inspections and Examinations will be issuing two Risk Alerts in the coming days to provide additional information about the scope and content of initial examinations for Reg BI and guidance on Form CRS.
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