Earlier this month, Finra also weighed in on Reg BI and released a checklist that outlines Reg BI’s “major requirements” and notes key differences between Finra rules and SEC’s Reg BI. The checklist is a helpful guide for industry professionals who are building a compliance program, but it hews closely to Reg BI requirements and should, therefore, be used as a foundational tool or benchmark for gauging the adequacy of a compliance program.
Our advice for firms that are building a compliance program around Reg BI is to treat its broker-dealer conduct standard as a floor, not a ceiling.
Firms should be prepared to build on their Reg BI compliance foundation by incorporating new or more stringent requirements. To that end, firms should continuously monitor legislation or rules enacted by states, state securities regulators, or SROs that alter applicable broker-dealer conduct standards. Such legislation or rules may comprise bespoke, and perhaps disparate, broker-dealer conduct standards with which firms will be expected to comply.
Our recommendation to national or regional firms that find themselves under a patchwork of disparate broker-dealer conduct standards—state or federal—is to develop policies and procedures that comply with the most restrictive standard(s).
Whether or not Reg BI survives in its current form, policies and procedures that comply with the most rigorous conduct standards will satisfy regulators’ compliance expectations. Registered broker-dealers should consider the conduct standard and other requirements in the states where they conduct business, develop a framework to identify the most restrictive requirements from those jurisdictions, and design their policies and procedures to comply with the most stringent mandates.
By designing and implementing policies and procedures that comply with the most restrictive regulatory requirements—treating Reg BI as a floor and not a ceiling—firms can establish a single internal standard that applies to securities transactions in all jurisdictions where the firm recommends securities transactions or investment strategies to retail investors.
Ghillaine A. Reid is a partner and Kurt Wolfe is a senior associate in the White Collar & Government Investigations practice at Troutman Sanders LLP.