SEC Division of Examinations Will Conduct More Focused Reg BI Examinations Beginning January 2021

Almost six months since Regulation Best Interest’s (“Reg. BI”) compliance date, the Division of Examinations (“Division”) (formerly the “Office of Compliance Inspections and Examinations” or “OCIE”) announced its intent to begin conducting more focused examinations for compliance with Reg. BI in January 2021.

The release stated that the Division staff will examine whether broker-dealers have written policies and procedures and systems in place to achieve compliance with the Regulation.  The Division also intends to conduct enhanced transaction testing designed to examine whether broker-dealers have effectively implemented their written policies and procedures.  Components of Reg. BI that may be the subject of focus during an examination include:

  • Continued evaluation of firm policies and procedures, including evaluating specific firm processes for compliance with the Regulation, and alterations to firm product offerings, including the removal of higher cost products when lower cost products are available.
  • Evaluation of how firms have considered costs in making a recommendation, which may include:
    • what information is available to firm personnel to identify relevant costs;
    • how any such information has been used; and
    • any documentation of the consideration of costs.
  • Evaluation of the processes firm personnel have used to make recommendations to new customers – for example, if a firm recommended a rollover from an employee benefit plan, examiners will assess: what information was gathered from new customers; what disclosures were made at the time; how alternatives were considered; and what documentation was retained.
  • Evaluation of the processes firm personnel have used to recommend complex products, including what information was available and used to consider reasonably available alternatives.
  • Evaluation of the processes that firms have used to identify and address conflicts related to recommendations.

The SEC encourages firms to continue evaluating their processes and to consider whether the initial programs adopted are reasonably designed to achieve compliance with Reg. BI in practice.

For more information, check out the Statement on Recent and Upcoming Regulation Best Interest Examinations from the SEC Division of Examinations.

If you have any questions regarding the foregoing or need assistance in evaluating your current Reg. BI compliance program, reach out to an NRS Consultant today.