The MSRB recently filed proposed amendments with the SEC to align MSRB rules with the requirements of SEC Regulation Best Interest (Reg BI). The MSRB’s proposal is designed to reduce any confusion or overlap in financial regulation and facilitate compliance with Reg BI. The proposed effective date is the compliance date for Reg BI, June 30, 2020.
The MSRB-proposed rule changes would revise:
- Rule G-19 (“Suitability of Recommendations and Transactions”) to limit its applicability (to those matters when Reg BI is not applicable);
- Rule G-48 (“Transactions with Sophisticated Municipal Market Professionals”) to clarify that relief from conducting a customer-specific suitability analysis when making a recommendation to a Sophisticated Municipal Market Professional (or “SMMP”) is only available for recommendations subject to MSRB Rule G-19; and
- Rule G-20 (“Gifts, Gratuities, Non-Cash Compensations and Expenses of Issuance”) to align permissible non-cash compensation with related requirements under Reg BI.
Additionally, the proposal would mandate all broker-dealers to maintain books and records consistent with Reg BI and related Form CRS requirements. The filing can be viewed here.
The MSRB’s proposed rule changes are consistent with those recently proposed by FINRA. In March, FINRA proposed rule changes that would: (1) amend the FINRA and capital acquisition broker, or CAB, suitability rules to state that the rules do not apply to recommendations subject to Reg BI, and to remove the element of control from the quantitative suitability obligation; and (2) conform the rules governing noncash compensation to Reg BI’s limitations on sales contests, sales quotas, bonuses and noncash compensation. FINRA’s filing can be viewed here.