By Mark S. Nelson, J.D.
The SEC’s Regulation Best Interest finally required firms to come into compliance with its rules as of June 30, 2020. In the months shortly before and after the compliance date, the SEC had hinted at the types of examinations it would conduct under Reg. BI via several guidance documents issued to broker-dealers (See prior Securities Regulation Daily coverage for more on the history of Reg. BI and early plans for examinations).
The SEC’s Office of Compliance Inspections and Examinations (OCIE), newly elevated to divisional status as the Division of Examinations, has now issued additional guidance on how it will conduct future examinations under Reg. BI (Statement on Recent and Upcoming Regulation Best Interest Examinations from the SEC Division of Examinations, December 21, 2020).
According to the Division of Examinations, it will begin conducting "more focused examinations" of firms under Reg. BI starting in early 2021. Specifically, the guidance states the Division will examine: (1) firms’ policies and procedures for compliance with Reg. BI; (2) firms’ consideration of costs in making recommendations; (3) firms’ processes for making recommendations to new customers; (4) firms’ processes for recommending complex products; and (5) firms’ processes for identifying and addressing conflicts related to recommendations.