On January 9, 2020, the Financial Industry Regulator Authority (“FINRA”) published its 2020 Risk Monitoring and Examination Priorities Letter (the “Letter”). The Letter made clear that the new Reg BI (also known as the “Best Interest” regulation), adopted by the Securities and Exchange Commission on June 5, 2019, would be its top priority in 2020. FINRA set forth the following questions that it will interpose in examinations of broker and dealers under its jurisdiction starting in July:
Does your firm have procedures and training in place to assess recommendations using a best interest standard?
Do your firm and your associated persons apply a best interest standard to recommendations of types of accounts?
- If your firm and your associated persons agree to provide account monitoring, do you apply the best interest standard to both explicit and implicit hold recommendations?
- Do your firm and your associated persons consider the express new elements of care, skill and costs when making recommendations to retail customers?
- Do your firm and your associated persons consider reasonably available alternatives to the recommendation?
- Do your firm and your registered representatives guard against excessive trading, irrespective of whether the broker-dealer or associated person “controls” the account?
- Does your firm have policies and procedures to provide the disclosures required by Reg BI?
- Does your firm have policies and procedures to identify and address conflicts of interest?
- Does your firm have policies and procedures in place regarding the filing, updating and delivery of Form CRS?