Displaying items by tag: reg bi

While many states are rushing to adopt an annuity sales rule revision, there are still some that are using the National Association of Insurance Commissioners (NAIC) old sales rules and are not likely to move to the new version anytime soon. The NAIC adopted the Suitability in Annuity Transactions Model Regulation in 2010. The model required annuity sellers to verify that the annuities sold to consumers suit those consumers’ needs. In 2019, the SEC adopted Regulation Best Interest, which requires annuity sellers to document that they have acted in the best interests of annuity clients, rather than putting their interests first. The NAIC then adopted suitability model changes that were based on the SEC’s Reg BI standard in 2020. This has resulted in state officials that support Reg BI and those that oppose Reg BI. The states that haven’t moved to the new model are considered gray zones due to a map created that reflects the NAIC’s understanding of state adoption efforts. The states colored gray on that map indicates that they are far from implementing the NAIC’s 2020 suitability model changes. They include larger states such as California and Florida as well as smaller states such as New Hampshire and Vermont. The NAIC’s Annuity Suitability Working Group presented the implementation map Wednesday at the NAIC’s fall national meeting

Finsum:The NAIC updated its suitability model for annuity sales based on the SEC’s Reg BI, but several states are nowhere near close to adopting the new model.

The mother lode of sweeps? And, nope, Mr. Bond, it’s nothing quite as clandestine as an undercover patting down of a room for listening devices.

Overactive imagination much, James?

According to fa-mag.com, there’s a gargantuan sweep of multiple states of broker dealers to gain a sense of just how effective their Regulation Best Interest implementation will be completed early next year. 

Last November, violations and, rampant, at that -- centering around retail advice and sales – reared themselves through similar multi state exams, which encompassed 443 firms, the site continued. That was despite the fact that, for more than 15 months, by then, Reg Bi had been in place.

Meantime, someone say “grace period?”

--Yes, indeed, and quite succinctly at that. And the one that pulled up to the station in the aftermath of Reg Bi’s implementation date wound to its conclusion with financial firms starting to face the first round of enforcement actions from regulators under Reg BI, according to stradley.com.

--Reg Bi was earmarked a priority by the Securities and Exchange Commission. What does that mean for firms? Well, it’s incumbent upon them to have in place the right people, processes and technology in place so they’re still in compliance.

Andrew Hartnett, president of the North American Securities Administrators Association, recently said in an interview that a massive, multi-state sweep of broker-dealers will be completed sometime early next year to gauge the effectiveness of their Reg BI implementation. This should give state regulators “what they hope” will be a clear snapshot of whether firms are putting investors' interests first or not. Last November, similar multi-state exams of 443 firms found pervasive retail advice and sales violations. This was in spite of the fact that Regulation Best Interest had already been in place for more than 15 months at that time. The 2021 sweep found a majority of broker-dealers and reps still putting their interests above their retail clients. The sweep also found that 65% of brokerage firms also failed to discuss lower-cost or lower-risk products with their clients, even when they offered such products. Hartnett stated, “Now we’re out there doing exams again to see where the industry is now, what’s changed and how well firms are implementing the requirements to look at reasonably available alternatives.” NASAA is also ramping up its focus on fees on the registered investment advisor side and expects to release that guidance next year.

Finsum:The time for leniency is over for broker-dealers as the NASAA is planning a multi-state sweep to gauge the effectiveness of their Reg BI enforcement.

According to Richard Best, Head of the Division of Exams at the Securities and Exchange Commission, Regulation Best Interest and the Advisers Act fiduciary duty remains a top priority for 2023 exams. While speaking at the SEC’s National Compliance Seminar, Best said that standards of conduct such as Reg BI and the fiduciary duty “remain top of mind for us.” Best told compliance officers that the Division of Exams is “focused on how broker-dealers and advisors satisfy their obligations under Reg BI and the Advisers Act fiduciary standard to act in the best interest of retail investors and not to place their own interests ahead of retail investors interest.” The exam division publishes an annual priorities letter each year, with the 2023 priorities expected to be issued early next year. The three areas of focus will be ESG-focused investing, private funds, and standards of conduct. For ESG, the SEC will look into whether advisors are accurately disclosing their ESG investing approaches and have implemented policies to prevent violations of federal securities laws.

Finsum:With exam priorities expected to be issued early next year, the SEC has made Regulation Best Interest and the Advisers Act fiduciary duty a top priority for 2023 exams.

If firms haven’t addressed and mitigated any potential conflicts of interest yet, they better start soon. Both FINRA and the SEC have not only brought their first Regulation Best Interest enforcements this year, but both agencies are promising that they will be ramping up enforcement. Robert Cook, President and CEO of FINRA, warned at the recent ALI-CLE Life Insurance Products Conference in Washington, D.C. that “Anything that would be a violation of the old suitability standard is now going to be a violation under the Reg BI standard.” He also warned firms that there are more Reg BI enforcement cases in the pipeline and said FINRA exams will “continue to evolve in terms of expectations and the depth of what we’re looking for.” Reg BI, which requires that registered reps demonstrate they have put customers’ best interests before their own is an upgrade from the old suitability standard, which only required reps to make sure products and services are appropriate for clients. The SEC has also promised more Reg BI enforcements and is bringing similar cases against investment advisor reps under the fiduciary standard. SEC Chairman Gary Gensler recently stated, “The ‘interplay’ between Reg BI and the fiduciary standard is important and that the agency will publish a staff bulletin on the topic.”

Finsum:After bringing their first Regulation Best Interest enforcements this year, both FINRA and the SEC are ramping up Reg BI enforcement.