Brokers across the country are worried about being able to fully be in compliance with the SEC’s Regulation Best Interest implementation date of June 30, according to the Financial Services Institute (FSI), an advocacy organization lobbying for broker/dealers.
“Similar to the rest of the country, and the world, our members have been adjusting to the new realities brought on by the coronavirus pandemic. They have been enacting business continuity plans and are assisting Main Street Americans who are in critical need of financial advice and guidance during this time of uncertainty,” David Bellaire, FSI’s executive vice president and general counsel said. “In light of these unprecedented circumstances, our members have expressed concerns about their ability to fully implement their Reg BI compliance programs and provide adequate training by June 30. We have shared these concerns with the SEC and will continue to advocate for temporary regulatory relief.”
Broker/dealers had previously been preparing for the implementation date of the SEC’s rule, but some analysts, including Ben Edwards, a securities and law professor at the William S. Boyd School of Law at University of Nevada, Las Vegas, said he wouldn’t be surprised if the commission decided to delay full implementation in light of the outbreak of COVID-19 in the United States.
“I’m sure many firms were working to schedule trainings and such,” Edwards said. “Updating those compliance structures, it does take time, and I think the deadlines were set under the belief that people would be able to go to work.”
The SEC declined to comment on whether there were plans for a potential delay of the rule, but Peter Driscoll, the head of the SEC's head of compliance and examinations, said during a conference call with a professional compliance organization Tuesday that the issue had been raised at the commission, though no decision had been made, according to several published reports.
The SEC has already pushed the deadline for firms to submit their Forms ADV from March 30 to June 30 in light of the coronavirus outbreak (additionally, FINRA has postponed all in-person mediation or arbitration proceedings through the end of May). However, the SEC examination program seems to be ongoing, according to Karen Barr, the president of the Investment Adviser Association. She said the IAA had also raised concerns to the SEC about the upcoming deadline for the Form Consumer Relationship Summary (CRS), which broker/dealers and RIAs must submit to the commission by June 30.
But if firms are having difficulty meeting compliance deadlines for the Form ADV due to client concerns, Barr said they should consider using the extended relief the SEC provided.
“We understand that the SEC is acknowledging the unprecedented situation and is not intending to engage in ‘gotcha’ exercises in regard to ADV,” she said.
However, firms shouldn’t necessarily see that extension as a ‘free pass,’ according to Brian Hamburger, the president of MarketCounsel. Hamburger noted that while the SEC was granting some relief with the extension, it could lead clients and regulators to question at a later point why the firm was not properly prepared to ensure compliance even in the midst of a situation like the one the industry currently faces. Hamburger also agreed that the SEC would still find ways to conduct its examinations even in the midst of the coronavirus crisis.
“The SEC has remained very tight-lipped on how the virus has impacted examinations, and for good reason. I understand why they’re being coy or maintaining discretion about the current position of examination resources, but I have to imagine the SEC is going to pivot, and they’ll pivot to other effective means of conducting those investigations.”
When it comes to a potential Reg BI or Form CRS delay, Hamburger did not have any additional information that the SEC might consider pushing back the implementation date.
“The SEC has said they’re monitoring and will continue to listen to registrants in this space. I don’t think it’s beyond comprehension that they’ll engage in some kind of deferment or delay,” he said. “However, I’m a big believer that this is our deadline until it’s not.”
