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.