The Financial Industry Regulatory Authority will file amendments to its longstanding suitability and noncash compensation rules to ensure they align with the Securities and Exchange Commission’s Regulation Best Interest rules—the sweeping standard of conduct rules for broker-dealers and their representatives that go into effect June 30, 2020.

Finra Vice President and Associate General Counsel Jim Wrona made the announcement today to a crowd of broker-dealer compliance executives at Finra’s Regulaton Best Interest Conference in Washington, D.C.

“We will be probably filing in the first quarter, perhaps as soon as January, amendments to the suitability rules and to the noncash compensation rule, that are not scary amendments. They’re just to make clear when Reg BI applies versus suitability to make it consistent with Reg BI,” Wrona added.

The stakes are incredibly high for firms, since the 1,000 pages of new regulation seem to touch and set up requirements for just about every aspect of retail operations.

Even “hire me” conversations can be construed as a “recommendation” which will trigger Reg BI requirements including potential disclosures, oversight and recordkeeping, an SEC official said.

“Say you hire someone who then talks to their former customers to tell them they’re moving from one firm to another. What’s important to consider there in terms of if that is a recommendation?” Wrona asked Emily Westerberg, who as chief counsel of the SEC’s Division of Trading and Markets has been a leading architect of the new package of rules.

“That is going to be a fact and circumstance determination. One factor to consider is whether it’s a call to action or whether it’s individually tailored. The more individually tailored the communication is the more likely it is going to be a recommendation,” Westerberg said.

The important thing to keep in mind here in determining if the communication is subject to Regulation Best Interest depends on whether or not it is a recommendation and not in the context or place where the conversation occurs, she said.

“I can envision situations that are going to look more of less like a recommendation, so in a ‘hire me’ scenario, calling a customer and saying ‘Hey, I’m leaving my firm today and I really would like you to continue a relationship with me and here’s your account information. Let’s go.’ Depending on the facts and circumstances, that looks more like a recommendation from my perspective,” Westerberg said.

“However, if it’s more like ‘Hey, I’ve enjoyed working with you I’m moving on. I’m going to contact you next week and talk about what my firm has to offer,’ depending on facts and circumstances that may not like a recommendation. So really the emphasis is on whether the conversation rises to the level of a call to action, “ Westerberg said.

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