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Keeping up with the regulators: How to build an effective compliance programme to satisfy the Best Interest care obligation
Journal of Financial Compliance,
8
(2),
131-143
(2024)
Abstract
Over the past couple of years, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have significantly increased their Regulation Best Interest (Reg BI) enforcement efforts. Broker-dealers will need to act fast, as the pace of enforcement picks up and regulators issue guidance regarding their expectations for broker-dealers and their associated persons. This paper is intended for legal and compliance professionals designing a Reg BI compliance programme. It draws from recent SEC and FINRA guidance and enforcement actions, and it highlights some practical issues as well as potential solutions. The paper begins by discussing the differences between Reg BI and the Advisers Act fiduciary standard. It then provides some general considerations regarding the scope and application of Reg BI. The paper continues with an analysis of recent guidance and enforcement actions related to the care obligation, which has been a focus for both the SEC and FINRA. Finally, the paper concludes with some commentary on Reg BI issues related to the use of artificial intelligence by broker-dealers.
Keywords: Regulation Best Interest; broker-dealers; investment recommendations; artificial intelligence; Securities and Exchange Commission; FINRA
The full article is available to subscribers to the journal.
Author's Biography
Stephanie Nicolas is a partner in WilmerHale's Securities Department and a member of the Securities and Financial Services Department. She has extensive experience handling a broad range of broker-dealer and investment adviser regulatory and enforcement issues, including: broker-dealer standards of conduct (Reg BI); information barriers and conflicts of interest; research activities; firm-wide supervision; trading and sales practices; capital markets; regulatory reporting and technology; and cross-border issues. She works with major investment banking firms, broker-dealers and other market participants to provide advice, conduct internal reviews and develop policies and procedures for a broad range of securities issues and activities. She has co-authored several articles on broker-dealer regulation and is a contributor to the Practicing Law Institute (PLI) Broker-Dealer Regulation treatise. She is a regular speaker at SIFMA, PLI and other conferences. She is ranked in Chambers USA for securities compliance. She graduated magna cum laude from the Georgetown University Law Center.
Joshua Nathanson is an associate in WilmerHale's Securities and Financial Services Department. He advises broker-dealers, securities exchanges and other financial institutions on a broad range of complex regulatory, compliance and enforcement matters.
