A broker-dealer was penalized by the Financial Industry Regulatory Authority (FINRA) for suspected violations of Regulation Best Interest (Reg BI), which shows the self-regulator is now actively going after businesses. Recently, IBM settled with three people over alleged violations of Reg BI.
Reg BI, enacted by the Securities and Exchange Commission in June 2020, mandates that broker-dealers and their connected people provide recommendations that are in the client’s best interests. Last year, the SEC and Finra started strictly enforcing the rule.
Long Island Financial Group FINRA Complaint
According to a letter of acceptance, waiver, and consent published by Finra on February 10, 2018, Long Island Financial Group, located in Long Island, New York, with five registered representatives, is accused of failing to establish written policies and procedures and a lack of a supervisory system reasonably designed to comply with the regulation.
In particular, the industry’s self-regulator claims that from June 30, 2020 (Reg BI’s effective date) until November 1, 2021 (when it first mentioned Reg BI), LIFG failed to include procedures for preventing, detecting, and correcting violations of the regulation, or for achieving compliance with it.
The acceptance letter claims that LIFG lacked the appropriate supervision system to meet its duties connected to Form CRS. This customer relationship summary became a requirement as part of Reg BI.
The regulator reported without acknowledging or contesting Finra’s conclusions, LIFG agreed to a reprimand and a $35,000 punishment.
In the past month, Finra has fined and suspended two more New York brokers for alleged violations of Reg BI relating to excessive trading.
In its first enforcement action under Reg BI, the SEC filed charges against a California-based hybrid registered investment advisor and five of its registered representatives in June.
The EU may be gearing up for future actions after issuing a danger advisory last month that detailed many noncompliance issues with Reg BI.
Reg BI – Striving for Greater Transparency in the Financial Industry
Regulation Best Interest (Reg BI) is a new standard implemented by the Securities and Exchange Commission (SEC) in June 2019, aimed at providing greater transparency and protection for investors. Under this rule, broker-dealers must act in the best interest of their clients when recommending investment products.
This regulation ensures that investors receive unbiased and suitable recommendations that align with their financial goals and risk tolerance. It also helps to mitigate conflicts of interest that may arise in the financial industry, ultimately benefiting the investor.
Reg BI is particularly significant given the growing complexity of financial products and the need for investors to have greater confidence and trust in the advice they receive. The rule also requires broker-dealers to disclose the scope of their services, fees, and conflicts of interest to clients.
The implementation of Reg BI marks a significant shift towards greater accountability and transparency in the financial industry. As financial advisors and broker-dealers work towards meeting the new rule’s requirements, investors can expect to benefit from more tailored and informed investment recommendations and improved disclosure practices.
Overall, Reg BI is an important development for the financial industry, as it seeks to strengthen investor protection and improve the quality of advice given to clients. By promoting greater transparency and accountability, Reg BI helps to ensure that investors can make informed decisions and have the confidence to navigate the complex landscape of financial products and services.