FINRA’s first full year of assessing compliance with the Securities and Exchange Commission’s Regulation Best Interest indicated that many firms still have a way to go, according to the regulatory authority. Recently released annual report On examinations and risk monitoring.
According to the report, examiners found that the written supervisory procedures of some firms provided little guidance by not specifying firm personnel responsible for monitoring Reg BI compliance. In other cases, firms stated the requirements of the rule in general terms, but failed to specify how they would comply, according to the report.
In some instances, FINRA examiners found that firms did not modify their existing policies to address the new mandates; Some did not explain how the rule should have considered cost and reasonably available alternatives or did not address conflicts that could lead to an incentive for customers to put their interests ahead of time.
According to the report, some firms have also fallen short on adherence to requirements for designing and delivering the Form Customer Relationship Summary (CRS) to customers. In some cases, firms did not fully represent the disciplinary histories of their financial professionals (the SEC raised it as One of the early problem spots for Reg BI/CRS compliance in fall 2020).
Examiners also found that in some cases, firms exceeded the required page limit of two pages (or four pages for dual registrants), did not describe the types and limits of services, and sometimes changed the language required by the SEC. Gave. In some cases, firms that have a public website fail to post (or prominently post) the form in such a way that retail customers can easily find it.
Additionally, some firms incorrectly ascertain that they are not required to file Form CRS because doing so depends on whether you made recommendations rather than on providing any service to the retail investor, or whether they felt they were What kind of customers they were serving, they removed them. regulatory requirement.
FINRA incorporated a number of best practices to address the issues. In the case of the lack of Reg BI/CRS, FINRA recommended the establishment of policies to identify conflicts, including a ‘conflict’ committee, and even all to remove the possibility of conflict. Broadly banning sales competitions is also included. Firms can reduce the risk of making recommendations that were not in the best interest of the customer by better classifying the risk and complexity levels of particular products and limiting their recommendations to certain customers. Additionally, FINRA recommends that companies conduct monthly reviews to ensure they meet Reg BI mandate recommendations and monitor social media and email so that professionals who are not Investment Advisory Representatives (IARs) are able to describe themselves. Not using the words “consultant” or “consultant”.
The 2022 report includes several new sections, including findings on how firms handle trusted contacts for clients, how they measure crowdfunded offerings and portfolio margin and intraday trading, among other topics. Additionally, testers found that firms often included inaccurate, false or misleading information when dealing with clients via mobile apps, including false information on the historical performance of accounts, sending margin call warnings to clients when their The balance was not close to the minimum maintenance requirements and involved misreporting. Clients stated that they were not set up to trade on margin.