Reg-BI Compliance Court

What’s happening in Reg-BI Compliance Court?

  1. I love to hear from readers.
  2. The Short Story to Reg-BI Court Developments
  3. Take note of Massachusetts.
  4. What is happening in your state? 
  5. Remember what the SEC wants.
  6. Be prepared for more regulation.
  7. Reg-BI Optimizer prepares you for any outcome.

Several prudent financial analysts and broker-dealers contacted me for Reg-BI updates. Specifically, they wonder if any court cases are affecting the interpretation of the SEC’s new regulation. While new court cases are slow to appear, the story is much bigger and more detailed than I thought


I love to hear from readers


First, I want to be clear that I welcome any questions or comments about my articles. If you have any topic ideas or research areas, write to me in the comment box below


The Short Story to Reg-BI Court Developments


With a Republican administration believing in small Federal government, I think it is safe to say that the SEC may defer to States to oversee and enforce Reg-BI’s new standards. With thousands of affected people in the financial services industry, this may make logistical sense. It means that RIA and BDs may experience different levels of scrutiny, depending on where they work.  


Take note of Massachusetts


Massachusetts began enforcing a new regulation at the end of August that would “raise the investment advice standard for brokers.” They are the first state to implement such a rule, but it will most likely not last. The bill has since been modified and not adopted yet, but I am sure it is on someone’s docket. 


Massachusetts has a formidable reputation for enforcing securities laws and may go even further. William Galvin, the state’s Secretary of the Commonwealth, ordered more than $56 million in fines between 2012-2013. Keep in mind that he can only impose penalties in Massachusettes. Finra, alone, fined its National BD members $78.2 million in that same period. For context, FINRA had a staff of 3,000 at that time while Galvin had just 26.


I don’t want to get into the weeds on Massachusetts state regulatory policy or any other state for that matter. William Galvin may be the Batman of regulating the Financial Services industry, but readers in the other 49 states can breathe a sigh of relief that they’re not in Massachusetts


What is happening in your state? 


New Jersey and Nevada

New Jersey and Nevada are two other states seeking to impose investment advice standards even after Reg-BI’s implementation date. COVID-19 delayed New Jersey’s advice standard, but that does not mean that it will stay dead

Nonetheless, Advisors in every state need to keep tabs on developing regulation. As I become aware of them, you can rest assured that they will appear on this blog.  


Remember what the SEC wants


First, Reg-BI exams will determine whether a BD or RIA has made a “good-faith effort to implement policies and procedures designed to comply with Reg-BI and be effective.” As of June 30th, 2020, the SEC wants documentation and proof that each recommendation an RIA or BD makes is within its “Best Interest” guidelines. 


Read more about what a “Best Interest” recommendation is on our blog.


The Commission will look for the same in their assessment of Form CRS filings. They will “review the filing and posting of the firm’s relationship summary as well as its process for delivering the CRS Form to existing and new retail investors.” The Office of Compliance Inspections and Examinations (OCIE) will most likely review filings that occur during the first year after the compliance date. COVID has likely pushed back that evaluation expectation.


As their April Announcement outlined, the OCIE will be evaluating each RIA and Broker-Dealer to the standards unique to their firm. Not every document listed in the announcement will apply to every firm.  


Be prepared for more regulation.


We can expect that many of these state-specific regulations may conflict with the federal government, but whether both are in effect will depend upon the SEC’s management style. 


The Biden campaign already made it clear that they are not fans of Reg-BI and would likely impose a more strict rule – like the Obama Administration’s DOL Fiduciary Rule.


Click HERE to read about Reg-BI’s future with a Democrat Administration.


Reg-BI Optimizer prepares you for any outcome


RiXtrema built their Reg-BI Optimizer on a backbone of understanding Regulation Best Interest and the DOL’s Fiduciary Rule. With Reg-BI Optimizer in your firm, you can rest easy knowing that you are ready for any regulatory outcome. A top ERISA Law Firm (Groome Law Group) reviewed and approved that the software meets the SEC’s expectations. 


Click the banner below to request a quick demonstration of Reg-BI Optimizer. See how it can easily elevate your firm to compliance or write to our Client Success Team with any questions at   

Read More about Reg-BI on our blog

regulation best interest software

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