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Q1 2020 hedge fund letters, conferences and more
On June 5, 2019, the United States Securities and Exchange Commission (“Commission”) adopted Rule 15l-1 (“Regulation Best Interest” or “Reg. BI”) under the Securities Exchange Act of 1934 (“Exchange Act”), which has a compliance date of June 30, 2020.1 What broker-dealers and their compliance and supervisory personnel need to know and do to prepare for July 1, 2020 is priority number one. This second article in this series examining Reg BI provides tips and tools for, in particular, independent broker-dealers to consider what needs to be done by July 1, 2020 and the balance of the year.
To recap the first article in this series2, in broadest terms, Reg BI provides that when recommending a securities transaction or investment strategy to a retail customer, a broker-dealer, including its associated persons, must act in the customer’s best interest by not putting its financial interests ahead of the interests of the customer when making a recommendation. Reg BI has four (4) component parts with which a broker-dealer must comply in order to satisfy this “best interest” standard: a (i) disclosure obligation; (ii) care obligation; (iii) conflict of interest obligation; and (iv) compliance obligation. Broker-dealers have an additional thirty (30) days from that filing deadline to provide all existing retail customers with a copy of the initial Form CRS.3
While the largest networks of independently managed firms may have the infrastructure and resources to prepare for and to implement the obligations of Reg BI, technology, resources and training remain significant obstacles for independent firms that vary by size, business lines, retail customer profiles and geographic locales. Given the breadth of Reg BI and the limited technical guidance that has been issued by the Commission and FINRA, independent broker-dealers, in particular, face significant challenges.
On May 5, 2020, FINRA hosted a “virtual conference panel” comprised of staff from the Commission’s Office of Compliance Inspections and Examination (“OCIE”) and FINRA as well as industry professionals to discuss how they intend to examine and inspect for compliance with Reg BI. Here’s what broker-dealers, investment advisers, dual-registrants, and compliance and supervisory personnel need to know and do4:
First, let’s re-state the obvious: June 30, 2020 remains the deadline for Reg BI, and, therefore, July 1, 2020 is the “go” date for the start of the first year of examinations. John Polise, executive director of the broker-dealer and exchange group in OCIE, explained that examinations will start in July and continue through the summer for a small portion of registrants with examinations across the larger broker-dealer marketplace continuing later in the year and into the first-half of 2021. Mr. Polise noted that, as with any new regulation, the Commission will undertake an implementation phase with firms that are trying to grasp what Reg BI requires.
Read the full article here by Scott Furst, Advisor Perspectives
