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SEC Says No Reg. BI Extension Despite COVID-19 Concerns

In a Statement on April 2, the Chairman of the Securities and Exchange Commission (SEC), Jay Clayton, announced that the June 30, 2020 timeline for implementation of Regulation Best Interest (“Reg. BI”) will remain, asserting that the date for firms to be in compliance with Reg. BI “remains appropriate” in light of the COVID-19 pandemic.  https://www.sec.gov/news/public-statement/statement-clayton-investors-rbi-form-crs.

In his statement, Clayton stated that since Reg. BI was adopted in June 2019, there has been considerable outreach from the SEC to the appropriate financial services firms regarding the implementation of Reg. BI.  This outreach has focused on how financial services firms should adjust their policies, practices and procedures in order to be compliant with Reg. BI by June 30, 2020.  Clayton stated “We believe firms with account relationships comprising a substantial majority of retail investor assets have made considerable progress in (1) adjusting their business practices, (2) supplementing and modifying their policies and procedures, and (3) otherwise aligning their operations and preparing for the requirements of Reg BI and the obligation to file and begin delivering Form CRS.”

Clayton went on to say that  “[B]ecause the continued implementation of these conduct and transparency initiatives, individually and collectively, will significantly benefit Main Street investors—we believe that the June 30, 2020 compliance date for Reg. BI and other requirements, including the requirement to file and begin delivering Form CRS, remains appropriate.”

However, in reference to the obvious disruptions of COVID-19, Clayton indicated that firms should be proactive in reaching out to the SEC if they confront issues that will prohibit them from being in compliance with Reg. BI by June 30, 2020.  He specifically mentioned disruptions due to national, state or local directives resulting from COVID-19.  The statement also cautioned firms that they should continue to make “good faith efforts” and should devote “resources as necessary and available in light of the circumstances” to ensure compliance with Reg. BI.   

The announcement makes it clear that the SEC does not want to categorically extend the deadline of June 30, 2020 for Reg. BI, but may consider doing so on a case-by-case basis should the circumstances merit.

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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.