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FINRA Agrees with SEC Regarding Enforcement of Regulation BI in Light of COVID-19

On April 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) published two Risk Alerts for Regulation BI and the corresponding Customer Relationship Summary Form (Form CRS).  The Risk Alerts outline the areas of inquiry in which OCIE will focus with respect to examinations relating to Reg. BI and Form CRS.  Our prior post concerning the Risk Alerts can be found here.

On April 8, 2020, FINRA, as the entity charged with enforcement of Reg. BI, announced that it “will take the same approach as set forth in the SEC Risk Alerts when FINRA examines broker-dealers and their associated persons for compliance with Reg. BI and Form CRS”.  This includes the implementation timeline of June 30, 2020.  FINRA also stated, “[T]his initial approach will focus primarily on assessing whether firms have made a good faith effort to and implement policies and procedures reasonably designed to comply with Reg BI and Form CRS”.  Additionally, FINRA reminds everyone that it “will take action in the event FINRA observes indications of customer harm or conduct that would have violated current standards (e.g., suitability)”.

Finally, FINRA does recognize the impact that COVID-19 may have on a firm’s ability to comply with Reg. BI and Form CRS under the current timeline.  They agree with the SEC that COVID-19 “has created challenges for firms” and FINRA may consider such challenges with respect to enforcement.  FINRA also agrees with the SEC that implementation of the enforcement of Reg. BI and Form CRS “will be an iterative process, and our focus will be on firms continuing good faith and reasonable efforts, including taking into account firm-specific effects from disruptions caused by COVID-19”.  FINRA’s full statement on the issue can be found here.  

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Author

David L. Ward is a Mintz attorney whose practice includes financial services regulatory matters, internal investigations, and securities-related litigation in state and federal courts. He represents financial services clients before the US Department of Justice, SEC, FINRA, and other regulators.