SEC Will Probe Broker Suitability Under Regulation Best Interest
The SEC’s Division of Examinations (FKA OCIE), plans to launch deeper suitability examinations into broker-dealers’ compliance with Regulation Best Interest. The Division will seek to determine whether brokers had a reasonable basis to make recommendations in the retail customers’ best interests. Staff will review (i) how a BD altered product offerings to respond to the rule’s new requirements, (ii) the BD’s assessment of product costs, (iii) the adequacy of a its procedures to assist reps to make suitable recommendations, and (iv) supervision. These new examinations will go beyond the initial exams which focused on whether firms simply made a good faith effort to comply with Regulation Best Interest.
The SEC is using Regulation Best Interest to exert authority over broker-dealer sales practices, regulatory territory historically policed by FINRA. Is this the beginning of the end for the legacy self-regulatory organization?