Displaying items by tag: reg bi

In a blog post, Bill St. Louis, FINRA’s head of enforcement, said that more Reg BI cases are ‘in the pipeline’ and that ‘disciplinary actions have been increasing’. He added that these cases in the pipeline involve Form CSR, excessive trading, complex products, and variable annuities. 

Two recent enforcement actions involved the use of social media influencers for customer acquisition. FINRA fined Cobra Trading $200,000 for paying social media influencers with larger followings to promote the firm. According to the agency, these promotional posts made false claims and were not fair or balanced. Similarly, M1 Finance was fined $850,000 for social media posts made by influencers on the firm’s behalf that violated FINRA’s guidelines. 

Given that a growing share of the public now gets news and information about investments from social media, the agency is conducting regular sweeps. Firms are also required to conduct a consolidated audit trail. According to St. Louis, most firms are in compliance with these reporting obligations, but some audit cases are also in the pipeline. 

Finsum: FINRA is stepping up enforcement of Reg Bi. Two recent enforcement actions were due to firms improperly using social media for promotion.  

Published in Wealth Management
Wednesday, 13 March 2024 11:48

No More Changes to Reg BI: Gensler

Gary Gensler, the chairman of the Securities and Exchange Commission (SEC), spoke recently at the Investment Adviser Association Compliance Conference. In a Q&A session with reporters, he remarked that there were no current plans to modify or update Reg BI. Instead, the agency’s focus is on ‘examining for and enforcing against’ Reg BI.


In later remarks, he addressed its approach towards predictive data analytics. He believes this is a gray area, and the SEC wants to ensure that there are no conflicts of interest within newer technology that utilize behavioral prompts and nudges. Of course, this topic is even more germane given the increasing use of artificial intelligence (AI) powered applications. 


Gensler wants to ensure that there are no loopholes to bypass the fiduciary rule. Many in the industry contend that this rule is a backdoor expansion of Reg BI and that current regulations were sufficient. 


Previously, Gensler had spoken that the new technology enables practices to micro-target consumers with products and content. While this can help advisors grow their business, he believes this communications channel needs to be regulated as well to ensure that these business interests are not placed above the clients’. 

Finsum: At a recent conference, SEC Chair Gary Gensler pushed back that there was a backdoor expansion of Reg BI due to the predictive analytics rule. The rule mandates that predictive technology that communicates with clients must also follow the fiduciary rule.


Published in Wealth Management
Friday, 02 February 2024 07:26

Regulators Stepping Up Reg BI Enforcement

FINRA and SEC regulators have increased enforcement and oversight of Regulation Best Interest (Reg BI). Recent focus has been on increasing compliance within the sales process. There have been several FINRA actions to punish firms for improper supervision to ensure the fiduciary standard is being followed.


The pace of these actions and enforcement has gradually picked up since the moratorium on enforcement ended. Further, regulators have also made public comments emphasizing the need for more aggressive action. 


In 2023, there were FINRA enforcements following only 8 in 2022. The agency has also started to impose personal fines for sales violations or requiring advisors to pay back a portion of losses. Prior, regulatory agencies would see compensation and damages from the firm rather than individuals. This change in strategy is a reflection that they are trying to deter violations of the fiduciary standard at the individual and firm level.


Looking ahead, comments from SEC and FINRA officials reveal that this is only the beginning. According to FINRA’s acting head of enforcement, Chris Kelly, ‘more and more’ cases involving all four pillars of Reg BI which includes disclosure, care, conflict of interest, and compliance are likely to be filed. 

Finsum: FINRA and SEC regulators are increasing Reg BI enforcement. They are targeting firms for improper sales supervision and punishing brokers for violations.


Published in Wealth Management
Wednesday, 20 December 2023 03:06

Regulators Stepping Up Reg BI Enforcement

Over the last couple of months, there has been an increase in the enforcement of Regulation Best Interest (Reg BI). Over the last year, the number of actions taken by the SEC and FINRA have substantially increased. It’s consistent with warnings from regulators that there would be a ‘more substantive’ period of enforcement and that Reg BI will be enforced ‘to the letter’.


Regulators want to see a more robust process to ensure supervision of brokers. The ultimate goal of Reg BI is to ensure that all recommendations are made in the clients’ best interests.  So far this year, there have been 22 FINRA enforcement actions after just 8 in 2022. Penalties are also growing in size as evidenced by an SEC settlement with Laidlaw and Company for $800,000.


Recent enforcement has also seen advisors having to pay back a portion of customers’ losses. This is a departure from precedent when firms were typically on the hook for compensation and indicates a serious commitment to deterring misconduct. 


In 2024, even more enforcement is expected given public comments from SEC and FINRA officials. They see enforcement expanding across all 4 pillars of Reg BI which include disclosures, care obligation, conflicts of interest, and compliance. 

Finsum: The SEC and FINRA are increasing enforcement of Reg BI. They are also looking to fine individual advisors and brokers for misconduct.


Published in Wealth Management
Wednesday, 15 November 2023 03:11

SEC’s Gensler Comments on AI Proposal

Over the summer, the SEC made a proposal that advisors and brokers would have to address conflicts that emerge through investors interacting with artificial intelligence, an algorithm, or similar technology. At the Securities Industry and Financial Markets Association annual conference, there was some discussion over this proposal with SEC Chair Gary Gensler challenging the audience of financial professionals in his remarks.


Essentially, many believe that this is a way to expand Reg BI to make it apply to all sorts of interactions that happen between an advisor and client. SEC Chair Gary Gensler pushed back on this when he remarked, “We’re not trying to change Reg BI or change the fiduciary guidance.” He clarified that instead the SEC is looking to crack down on the use of predictive analytics to ‘micro target’ investors.


According to Gensler, there is an inherent conflict between current standards and this new technology if it’s built to help an advisor or broker increase their earnings as it would lead to unsuitable recommendations. He wants to see these algorithms modified so that the advisors’ interests are eliminated or neutralized. However, he didn’t have a strong opinion on how this should be achieved, citing that there are multiple paths to achieving this goal.  

Finsum: The SEC is proposing a new rule for use of AI and predictive data analysis. At a recent conference, SEC Chair Gary Gensler provided some more details about the proposal. 

Published in Wealth Management
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