The SEC’s latest regulation, the Regulation Best Interest is now in effect with firms having to bring their operations into compliance from June 30, 2020. SEC examination notices are now going out – there is an expectation that firms have updated their policies, procedures, and made their staff aware of the obligations regarding conflict disclosures, and that the firms have determined the content and delivered the Form CRS to clients.
In this short article we will focus on the requirements around Policies and Procedures, Attestation and Training of staff to comply with the Reg BI expectations, and how La Meer’s GRACE platform provides a full solution for all of the regulation requirements.
As a short reminder, Reg BI mandates four Compliance Obligations:
- Disclosure Obligation: required before, and at the time of recommendation acceptance, and if there are any changes in conditions due to new conflicts or changes.
- Duty of Care Obligation: the exercising reasonable due diligence, care and skill in making recommendations.
- Conflict of interest Obligation: establishing policies and procedures to identify and address conflict of interest.
- Compliance Obligation: establishing policies and procedure to monitor compliance with Reg BI.
Policies & WSPs, Attestation and Training
FINRA recently provided additional guidance on how they will focus on a firm’s compliance with Reg BI – in July 7, 2020 podcast, Jim Wrona, Vice President and Associate General Counsel at FINRA, summarized their current approach to Reg BI:
“By and large, we’re going to be looking at the compliance obligations of policies procedures and training, and we’re not looking at it to say, ‘did a firm do everything the way that we would have done it,’ or ‘did they do everything perfectly.’ We’re looking to see do they understand the obligations, and do they make a good faith effort to implement the changes that needed to be made and incorporate those in their policies procedures and training.”
Robert Cook, the CEO of FINRA, was also interviewed on July 7, 2020 – in his interview he reiterated that FINRA will look at a firm’s “good faith efforts to comply” and the policies and procedures put in place to meet the requirement of Reg. BI. Cook also noted that FINRA will likely look at Reg BI obligations as part of the normal cycle of exams with firms, however, noted that “there may be stand-alone exams [of Reg BI compliance] if there is a customer complaint or the filing of an arbitration”.
FINRA’s 2020 examination priorities include:
- Does a firm have procedures and training in place to ensure recommendations are in the best interest of the customer?
- Does a firm apply the best interest standard to recommendations regarding the type of an account a customer should use?
- Whether account monitoring is offered and accepted by a customer.
- Do a firm and associated persons consider the express new elements of care, skill and costs when making recommendations to retail customers?
- Do a firm and associated persons consider reasonably available alternatives to a specific recommendation?
- Do a firm and associated persons guard against excessive trading, even if they do not control an account?
- Does a firm have policies and procedures to provide the Regulation BI disclosures?
- Does a firm have policies and procedures reasonably designed to identify and address conflicts of interest?
- Does a firm have policies and procedures in place regarding the filing, updating and delivery of Form CRS?
With so many potential items to have to demonstrate during an examination, it is only with the use of technology solutions that are correctly integrated that firms will be able to easily demonstrate that they have their house in order and are taking care of the regulatory requirements, and of course, that they are genuinely doing what is needed to serve the client well.
How does GRACE help?
Policy and Procedure Management
La Meer’s GRACE platform helps the organization be prepared and organized so that regulatory examinations run smoothly. GRACE enables firms to set up all of their Policies and WSPs (Written Supervisory Procedures) through our web portal. Enabling documents to be created, shared, and approved thru an auditable workflow process with multiple drafts and revisions to be made. Documents can be sent for review to the appropriate business groups, general counsel, marketing and other relevant entities who need to include their specific process requirements, their comments, along with their draft corrections can be received online by the document owner to finally arrive at the final version of the document. The final, approved, document can then be released and will become the document that the organization can refer to. GRACE tracks all the version histories and review comments. The GRACE Policy Dashboard becomes the one source of referral for the entire organization for the latest documents that can be sent to staff to read and attest as well as produced when it comes time for FINRA and SEC examinations.
Attestation is a key way of informing both the staff and the associated persons of their obligations to meet the Best Interest Requirements of Reg BI. Distributing the newly defined policies and procedures, and setting up the attestation requirements in online forms—sending them to all required parties to read and attest on them online is the easiest way for the staff and associated persons to demonstrate their understanding of new obligations. GRACE offers an effective way of setting up these at the firm level and distributing via e-mail alerts and allowing the staff and associated persons to read and attest online.
All staff and associated persons have to be trained in their obligations under the Best Interest Requirements of Reg BI. Where the majority of Associated Persons are not located in a single location, online training is an option many firms will be looking for, especially with the COVID-19 restrictions in place.
The GRACE Training module allows users to be allocated to specific role groups and various training courses can be offered to them via online training. La Meer can help build customized training for each organization according to their business processes and definitions from Reg BI on a project basis; this will allow all their staff to have online access to the materials, go thru the training and to answer questions that can validate their knowledge of their regulation and the nuances of the business process in making recommendations as the organization’s policies and procedures.
Records of training undertaken can provide books and records during examination as well as effectiveness of training measured online through the online dashboard along with status of how many people have got trained and those who have not yet completed their required training.
GRACE has everything you need in one place
La Meer’s GRACE platform has all the functionality you need to create, review, approve and distribute policies and procedures required by the Regulation Best Interest, have an auditable record that staff have read and attested their understanding of their obligations. GRACE’s training module allows the organization to manage and monitor participation in e-learning training for both staff and Associated Persons, testing and validating the knowledge of everyone concerned. Regulatory examinations are easily taken care of when all the required information is in one place, and a firm can demonstrate that it has taken its obligations seriously and really is acting in the best interests of its clients!
GRACE for Regulation Best Interest
Whatever stage you are at with your Regulation Best Interest implementation, the GRACE for Regulation Best Interest solution can help you. We cover all key areas:
- Form CRS And Disclosures Management
- Policies and Procedures, Attestation and Training
- Client Relationship and Recommendations Management
- Client Portal
- Client Risk Profile Management and Classification
- Product Suitability and Governance
- Portfolio Oversight Management
- Advisor and Registered Rep Supervision
- Conflicts of Interest Monitoring
The modular nature of the GRACE platform allows our clients to implement (and pay for) only the modules or functionality they need, so if you are having a challenge with one particular area of the regulation we can help, and quickly add the next pieces when you are ready without the need for additional vendors or integration costs. The GRACE platform is 21st century technology, cloud-based, web, tablet and mobile-enabled allowing advisors, clients and compliance officers to interact whenever and wherever they are – essential in working from home or with a distributed workforce. The solution is intuitive and easy to use, empowering staff to work in a compliant way, without unnecessary or complex overheads.
If you are working on your whole solution for day two and beyond we would be like to speak with you to understand the challenges you are having, and to discuss with you how GRACE might help you in easing your Regulation Best Interest demands.