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Regulation Best Interest: A new standard of conduct for broker-dealers in recommendations to retail customers
Journal of Financial Compliance,
3
(4),
302-317
(2020)
Abstract
This paper analyzes the Securities Exchange Commission’s new Regulation Best Interest rule. Regulation Best Interest, which goes into effect on June 30, 2020, enhances the obligations that apply when a broker-dealer makes a recommendation to a retail customer. The new standard requires broker-dealers and their associated persons to act in the best interest of the retail customer at the time a recommendation is made without placing the interests of the broker-dealer ahead of the interests of the retail customer, and implement policies and procedures designed to identify and disclose conflict of interest. The Specific Obligations require Disclosure (providing specific disclosures before or at the time of the recommendation), Care (exercising reasonable diligence, care and skill in making the recommendation), Conflict of Interest (establishing, maintaining and enforcing policies and procedures reasonably designed to address conflicts of interest) and Compliance (establishing, maintaining and enforcing policies and procedures). This paper explains both the general and specific obligations, compares the current obligation against the enhanced Regulation Best Interest, and suggests practical compliance steps for the broker dealer.
Keywords: Regulation Best Interest; SEC; broker-dealer; conflict of interest; investor protection; disclosure obligations; duty of care
The full article is available to subscribers to the journal.
Author's Biography
Susan Light a Financial Markets and Funds partner in Katten’s New York office, offers clients a universe of insights gained over 30 years as a senior leader and regulatory officer inside both the New York Stock Exchange (NYSE) and the Financial Industry Regulatory Authority (FINRA). That experience and knowledge allow her to handle any securities regulatory problem that may confront broker-dealers and other financial services firms. She is particularly well suited to advise on complex investigations of securities law violations, including those involving firmwide supervisory failures. Susan represents large and small broker-dealers, as well as hedge funds, investment banks and other financial services providers. She helps these clients understand the regulatory landscape, design procedures to avoid regulatory problems and resolve investigations and enforcement actions. In matters that involve regulators, her extensive network of contacts allows her to successfully engage with them on her clients’ behalf. At FINRA, Susan served as senior vice president and chief counsel of enforcement, where she oversaw all aspects of investigations and disciplinary hearings involving a wide variety of FINRA rules and federal securities laws. She occupied a similar role at NYSE Regulation, Inc., prior to its merger and integration with FINRA.
