By George H. Friedman, SAA Editor-in-Chief
As the June 30 enforcement date of the SEC’s Regulation Best Interest (“Reg BI”) approaches, various preparatory steps are rolling out by the regulators. We describe them here.
More specifically, the Certified Financial Planner Board of Standards Inc. (“CFP Board”) and FINRA each deployed changes aimed at facilitating transition to Reg BI. We describe them below.
We reported in SAA 2019-29 (Aug. 1) that the CFP Board had delayed until June 30, 2020 enforcement of its fiduciary standard rule that went into effect October 2019. A little review is in order: We reported in SAA 2018-01 (Jan. 3) that the CFP Board in late 2017 issued a revised draft of proposed changes to its Code of Ethics and Standards of Conduct ("Code"). An accompanying Press Release offered this summary: "The revised proposal maintains from the initial proposal the expanded scope of the fiduciary standard that requires CFP® professionals [ed: including brokers] to act in the best interest of the client at all times when providing financial advice. CFP Board made changes to some of the disclosure and other requirements in recognition of the need to be practical in considering changes to its Standards and to ensure the revised proposal focuses primarily on standards governing the provision of Financial Advice to actual Clients" (emphasis in original). As we later reported in SAA 2018-15 (Apr. 18), the Board announced in March 2018 that the new Code had been finalized and would go into effect October 1, 2019. However, the CFP Board issued a July 16th statement announcing a compliance enforcement delay to June 30, 2020. Why? Said the statement: “The Board, however, does believe that the alignment of the SEC’s enforcement date of Regulation Best Interest (Reg BI) is helpful to our CFP® professionals in that there is significant overlap in the two sets of standards – with a notable exception that CFP® professionals are required to act as a fiduciary whenever they are providing financial advice to clients.” A May 29 Press Release states that the enforcement date is going ahead as scheduled, and announces “the adoption of new Procedural Rules, strengthening the processes for enforcement of the ethical and practice standards….”
New FINRA Customer Complaint Reporting Codes …
FINRA Rule 4530 (Reporting Requirements) requires firms to report, among other things: “quarterly statistical and summary information regarding written customer complaints. All customer complaint information must be electronically reported to FINRA. In addition, the rule requires firms to file with FINRA copies of specified criminal actions, civil complaints and arbitration claims, which firms may file online” (footnotes omitted). The Rule requires firms to indicate the appropriate Problem Code when reporting this information. In advance of Reg BI’s enforcement rollout, FINRA on June 10 published Regulatory Notice 20-17, FINRA Revises Rule 4530 Problem Codes for Reporting Customer Complaints and for Filing Documents Online. Specifically, FINRA is adding two new Problem Codes related to both Reg BI and Form CRS: “Problem Code 16–Reg BI” and “Problem Code 17–Form CRS.” The authority is also eliminating “Problem Code 69–DOL Fiduciary Rule.” The implementation date is July 18, 2020.
… And Coordination of Suitability and Other Rules
The Authority on June 19 issued Regulatory Notice 20-18, FINRA Amends Its Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest. As the name implies, and as the summary states: “FINRA has amended its suitability rule, Capital Acquisition Broker (CAB) suitability rule and rules governing non-cash compensation to provide clarity on which standard applies and to address potential inconsistencies with the Securities and Exchange Commission’s (SEC’s) Regulation Best Interest (Reg BI). These changes have been approved by the SEC and become effective on June 30, 2020, the compliance date of Reg BI.” A footnote adds: “See Securities Exchange Act Release No. 89091 (June 18, 2020) (Order Granting Approval of File No. SR-FINRA-2020-007).”
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