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Preparing for Regulation Best Interest Exams in 2021

Thursday, February 11, 2021

As 2021 starts, we’ve experienced almost a full year of living in a pandemic. Work processes have hopefully streamlined and improved, as you’ve developed ways to work around social/physical distancing and to ensure you have all your ducks in a row when it comes to new regulations.

At least, that’s what the SEC is expecting.

Even with COVID-19’s impact, it is business as usual for the Securities and Exchange Commission (SEC). The SEC has made it clear that their Regulation Best Interest (Reg BI) inspections will be more focused and specific during upcoming examinations.

What Does This Mean for My Organization?

Regulation Best Interest (Reg BI), among other efforts, includes a requirement to create the Client Relationship Summary (Form CRS) and to provide it to all clients. The SEC has published information regarding past and future broker-dealers and Form CRS focused exams.

In late December, the SEC noted that their upcoming exams would focus on written supervisory procedures and their implementation and fees being charged to clients. Specifically, it has announced its intention to “focus on specific requirements of the Regulation, including those that go beyond suitability standards and require broker-dealers to have a reasonable basis to believe that recommendations are in retail customers’ best interests.”

What Should I Do To Prepare for my Reg BI Review?

Since Reg BI has been high on the list for regulators and firms alike over the past several months, you should have your information in good shape.

Take time to review your written policies, document your review process, and ensure your employees and your firm comply. Also, ensure you document any updates you make; if you haven’t recorded your efforts, the SEC can’t just take it in good faith that you’ve followed their requirements.

Also, the SEC’s recent announcement indicated that fees are going to be on their radar. Broker-dealers should be prepared to justify purchases in client accounts and provide due diligence on those products’ costs compared with the return on investment.

Additionally, the written supervisory procedures will be scrutinized to determine if Reg BI and the Form CRS are adequately addressed within the written procedures, and more importantly, that the firm and all its employees are in compliance.

As stated before, COVID has altered the way business is conducted and has increased costs and the need for thorough processes across remote work locations. However, even amid these trying times, the regulators rightfully expect compliance to be a priority for all firms; focusing on making money at the expense of a tight compliance program will not be acceptable.

If you’re unsure whether you are in good shape for a Reg BI review or your examination in general, don’t wait until the last minute to get your documentation in order. Gathering data, sign-offs, and more across the remote workplace will likely require more time and effort than you expect. Spend the time now to ensure you’re ready when the SEC comes calling.

About Red Oak Compliance Solutions

Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes. 

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