After years of discussions and preparations, the Securities and Exchange Commission's best-interest standard took effect June 30, ushering in a new regulatory regime for financial service professionals.
But in the coming weeks and months, it's anyone's guess as to how the SEC's rule package will be enforced, especially in the midst of a pandemic, sources said. Commonly known as Reg BI, the package and its centerpiece best-interest standard, which the SEC adopted in June 2019, aims to compel brokers to put clients' financial interests ahead of their own and requires them to mitigate financial conflicts.
"Because it's a new rule with no real regulatory enforcement history, everyone is doing what they think needs to be done but at the same time waiting for additional regulatory guidance to understand where their programs may need to even be scaled back, where they've gone above and beyond what regulators may be expecting," said Joshua Uhl, a New York-based senior manager in Deloitte LLP's financial services practice.
Examinations could start any time now.
In April, the SEC's office of compliance inspections and examinations issued two risk alerts providing broker-dealers and investment advisers with advance information about the expected scope and content of the initial examinations for compliance with Reg BI and Form CRS.
For Reg BI, initial examinations will assess whether broker-dealers have made a "good faith effort to implement policies and procedures reasonably designed to comply" with the regulation, the SEC said. And for those subject to Form CRS, which necessitates that firms disclose to retail investors the nature and scope of their services, the types of fees customers would incur, the conflicts of interest faced by the firm and the firm's disciplinary history, examinations will assess whether they have made "a good faith effort" to implement the regulation.
"I think they are going to give the industry an opportunity to comply in the way they feel we should," said Kevin Carroll, managing director and associate general counsel for the Securities Industry and Financial Markets Association in Washington. "That process will involve getting initial feedback where they think we need to do more and take further action."