Despite the ongoing spread of COVID-19 in the United States that has forced many firms to implement business continuity plans and work remotely, the SEC is holding fast to June 30 as the implementation date for Regulation Best Interest, according to SEC Chairman Jay Clayton. However, in a statement released today Clayton did say firms should reach out to commission staff if meeting certain filing or regulatory requirements was more difficult because of the coronavirus crisis.
“To the extent that a firm is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19,including as a result of efforts to comply with national, state or local health and safety directives and guidance, the firm should engage with us,” Clayton said. “I expect that the Commission and the staff will take the firm-specific effects of such unforeseen circumstances (and related operational constraints and resource needs) into account in our examination and enforcement efforts.”
Clayton asserted that in the 10 months since June 2019, when Reg BI was approved, the SEC has worked with broker/dealers, advisors and other regulatory agencies like FINRA to help them adjust business practices, modify policies and align operations to comply with Reg BI and submit a Form CRS to the commission by June 30. Clayton cited this engagement (and Reg BI’s potential impact on retail investors) as a reason to stick to the original date.
In recent weeks, some have questioned whether the SEC would delay the implementation date after the spread of COVID-19 forced many financial advisors and regulatory agencies to work from home. Last month, the SEC delayed the submission date for Forms ADV from March 30 to April 30 (and later delayed it even further, until June 30). Additionally, late last month the Financial Services Institute (FSI), which lobbies on behalf of b/ds throughout the country, advocated for temporary regulatory relief from the commission. But the FSI is not seeking a delay of implementation from the SEC, according to the institute, but is seeking a delay on enforcement.
"We are encouraged by today’s comments from Chairman Clayton about the SEC’s willingness to work with firms," David Bellaire, FSI's executive vice president and general counsel said. "This will assist our members as they help Main Street investors navigate these uncertain times while continuing to work diligently to comply with Reg BI.”
A delay of Reg BI may not be necessary, though it would remove an additional stressor on a broker/dealer population that is already under stress, according to Sander Ressler, a managing director and co-owner of Essential Edge Compliance Outsourcing Services. Ressler, who counsels independent broker/dealers on compliance solutions, said the implementation wouldn’t necessarily be difficult, but said Clayton and the SEC could take the time during a postponement to increase the guidance for b/ds so they can more satisfactorily comply with the new rules.
“Firms aren’t looking at the implementation of rules 90 days from now. They’re trying to get through each and every day. I think firms’ perspectives on what they can accomplish are day-to-day and week-to-week,” he said. “If they have to do it, they will ... but it’s an additional burden I think is unnecessary.”
Preparing for Reg BI examinations has continued apace during the commission’s mandatory teleworking environment, according to Clayton, who said that the SEC’s Office of Compliance Inspections and Examinations would be releasing two Risk Alerts in the next few days. One would offer b/ds detail about the “scope and content” of the office’s initial examinations for compliance with the best interest rule, while the second alert would detail the same information for the new Form CRS mandated for both b/ds and investment advisors.
“Our staff is continuing to work collectively on Reg BI examination scoping and will continue to work closely with FINRA to help ensure consistency in examining firms and their associated persons for compliance with Reg BI and Form CRS,” Clayton said.
