SEC Staff Identifies Common Reg. BI Compliance Deficiencies

In a Risk Alert, the SEC Division of Examinations identified common deficiencies in broker-dealers' compliance with Regulation Best Interest ("Reg. BI").

In the Risk Alert, SEC staff said that it had observed multiple instances where broker-dealers did not have written policies compliant with Reg. BI. The SEC said that many broker-dealers either (i) used generic policies not tailored to the relevant firm's business, or (ii) merely restated the rule's requirements. SEC staff also found that many broker-dealers relied on pre-Reg. BI surveillance and training programs and did not consider whether those programs should be modified to be Reg. BI compliant. Additionally, SEC staff identified deficiencies in many broker-dealers' policies for identifying and addressing conflicts of interest, including limiting the scope of review to prohibited activities only, and improperly using disclosures as a means of mitigating potential conflicts. SEC staff also found instances of disclosure distribution deficiencies, including failing to deliver disclosures where they were made available online.

The SEC encouraged broker-dealers to review these deficiencies and to implement programs to address them.