The Financial Industry Regulatory Authority (Finra) intends to spend the first part of the year reviewing broker-dealers’ preparedness for Regulation Best Interest, according to the self-regulatory organization’s “2020 Risk Monitoring and Examination Priorities Letter,” released today.

Once the retail conduct regulations go into effect on June 30, 2020, Finra will start examining firms’ actual compliance with Reg BI and its new customer relationship summary disclosures, according to the exam priorities letter. Registered rep and investment advisor rep compliance are part of the examination priority.

“Finra staff expects to work with SEC staff to ensure consistency in examining broker-dealers and their associated persons for compliance with Reg BI and Form CRS,” the regulator wrote.

The regulator also included a checklist of what examiners will be looking for after Reg BI goes into effect:

  • 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?

The checklist is a new tool for firms to use in 2020 in assessing their compliance. "Finra continues to identify new ways to provide firms with information they can use to assess and strengthen their compliance, supervisory and risk management programs," the regulator’s CEO Robert Cook said.

Other top examination priorities for the agency in 2020 include:  

  • Communications with the public, with a focus on private placement retail communications and communications via digital channels;
  • Cash management and bank sweep programs;
  • Direct market access controls;
  • Best execution;
  • Disclosure of order routing information; and
  • Cybersecurity.

Finra will also continue to review firms' compliance in “consistently important areas” such as systems for supervision, sales practice risks, anti-money laundering and fraud, insider trading and manipulation across markets and products, according to the letter.