Reg BI and Form CRS
Regulatory Obligations and Related Considerations
Reg BI establishes a “best interest” standard of conduct for broker-dealers and associated persons when they make a recommendation to retail customers of any securities transaction or investment strategy involving securities, including recommendations of types of accounts.
Broker-dealers are also required to provide a brief relationship summary, Form CRS, to retail investors on the types of client and customer relationship and services the firm offers; the fees, costs, conflicts of interest, and required standard of conduct associated with those relationships and services; whether the firm and its financial professionals currently have reportable legal or disciplinary history; and how to obtain additional information about the firm.
- Does your firm have policies, procedures and controls 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 and recommendations to roll over or transfer assets from one type of account to another?
- Do your firm’s policies, procedures and controls continue to address compliance with FINRA Rule 2111 (Suitability), which still applies to recommendations made to non-retail investors?
- Does your firm have policies, procedures and controls addressing Reg BI’s recordkeeping requirements?
- Has you firm provided adequate Reg BI training to its sales and supervisory staff?
- 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 the firm place any material limitations on the securities or investment strategies involving securities that may be recommended to a retail customer, and if so, does the firm address and disclose such limitations?
- Does your firm have policies and procedures to identify and address conflicts of interest?
- If the firm is not dually registered as an investment adviser, commodity advisor or municipal advisor, does the firm or any of its associated persons who are not dually registered advisors or advisory representatives use “adviser” or “advisor” in their name or title?
- Does your firm have policies, procedures and controls in place regarding the filing, updating and delivery of Form CRS?
- Does your firm’s Form CRS accurately respond to the disciplinary history question with regard to the firm and its financial professionals?
- If your firm has a website, has it posted its Form CRS in a prominent location on that website?
- Does your firm’s Form CRS include required conversation starters, headers and prescribed language?
Exam Findings and Effective Practices
As FINRA is in the early stages of reviewing for compliance with these new obligations, this Report will not include exam findings or effective practices relating to Reg BI and Form CRS. FINRA notes that the SEC held a virtual Roundtable on Regulation Best Interest and Form CRS that discussed some early examination findings. We anticipate issuing a separate publication in the future after more exams have been conducted. FINRA reminds firms to review the materials noted in the Additional Resources section below.
- Regulatory Notice 20-18 (FINRA Amends Its Suitability, Non-Cash Compensation and Capital Acquisition Broker (CAB) Rules in Response to Regulation Best Interest)
- Regulatory Notice 20-17 (FINRA Revises Rule 4530 Problem Codes for Reporting Customer Complaints and for Filing Documents Online)
- FINRA Highlights Firm Practices from Regulation Best Interest Preparedness Reviews
- SEC’s Regulation Best Interest, Form CRS and Related Interpretations
- FINRA’s Regulation Best Interest (Reg BI) Topic Page
Communications and Sales