In a recent settlement with the Financial Industry Regulatory Authority (FINRA), a small Texas-based brokerage firm has agreed to pay a $35,000 fine and update its supervisory procedures within 60 days. The firm was charged with violating the Securities and Exchange Commission’s (SEC) Regulation Best Interest (Reg BI) obligations, which were implemented on June 30, 2020.
According to the settlement, the firm failed to put adequate policies and procedures in place to comply with Reg BI. The firm’s updated procedures in October 2021 only discussed the SEC’s rule in general terms and did not address the obligations on conflicts of interest or care for clients. Additionally, the firm omitted mandatory information from its Form CRS, which the SEC requires registrants to deliver to clients.
This case is the latest example of FINRA’s accelerating trend in enforcing Reg BI. Despite being a relatively new addition to the regulatory toolbelt, Reg BI is already among FINRA’s top five enforcement issues in terms of fines, according to a study by the law firm Eversheds Sutherland.
Adam Pollet, a partner at Eversheds Sutherland, stated, “Given the rise in FINRA disciplinary actions relating to Reg BI in 2023, I think it’s fair to say that FINRA has already established itself as the primary regulator for Reg BI going forward.”
Earlier this week, FINRA also suspended a represented for three months for “willfully” violating Reg BI.
As FINRA continues to prioritize Reg BI enforcement, brokerage firms and financial advisors must ensure they have robust policies and procedures in place to meet these regulatory obligations and protect their clients’ best interests.
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