Another area cited “more and more often” in the SEC deficiencies letters are firms’ policies and procedures to comply with the Reg BI conflict of interest obligation. This “is continuously tripping people up,” Hanna said.
Finra and SEC examiners are asking why broker dealers’ policies and procedures aren’t specific about how to identify conflicts of interest on an ongoing basis. “What I’m seeing is a lot of examiners not satisfied with the policies and procedures firms have in place to identify and assess how they deal with conflicts of interest,” Hanna said.
“A lot of firms took a lot of effort to identify conflicts before Reg BI/ But the SEC is now expecting the conflicts management process to be a living process, not a completed process. The SED expects firms conflicts will evolve over time and new conflicts will arise,” Hanna added.
He said there were no precedents or prescriptions for these kinds of procedures and processes in broker-dealer regulation before and while some firms are doing their best, they haven’t gotten there yet.
“I expect that over time this administration is going to take a very aggressive approach to root out practices they think are not appropriate. I think a lot of the folks in leadership positions now were not necessarily thrilled with Reg BI. But I don’t think they’re lacking for powers or tools to aggressively pursue whatever objectives they have,” Hanna added.