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Law360 (April 2, 2020, 9:47 PM EDT ) U.S. Securities and Exchange Chairman Jay Clayton said Thursday that the June 30 compliance deadline remains in effect for Regulation Best Interest despite the continued impacts of the coronavirus on financial markets.
The comments come as the pandemic sweeps across the nation and amid a number of measures the agency has taken to provide some relief in the way of relaxed regulatory requirements and deadlines.
"We recognize that Reg BI and Form CRS are significant regulatory enhancements and that firms have dedicated, and are continuing to dedicate, substantial time and resources to comply with the new requirements," Clayton said in a statement.
He added that firms may contact the SEC with concerns about disruptions caused by COVID-19 and will review those case by case.
Clayton noted that the Office of Compliance Inspections and Examinations plans to issue two so-called risk alerts in the coming days that will elaborate on Reg BI as firms prepare to meet the deadline.
The OCIE alerts will provide broker-dealers with information about the "scope and content" of the initial phase of examinations for Reg BI while the second will give broker-dealers and investment advisers similar information with respect to Form CRS, he said.
The plans to plow ahead with the June 30 compliance deadline and subsequent examinations come as the SEC has taken various other measures granting investment firms, advisers, borrowers, crowdfunders and other groups regulatory relief and deadline extensions as they grapple with the unprecedented impacts of COVID-19.
Reg BI, adopted last June, establishes a "best interest" standard for broker-dealers to never put their interests ahead of those of their clients when recommending a securities transaction or investment strategy in part by disclosing all conflicts of interest.
In addition firms must provide customers with briefs mapping out the services they are receiving and the associated costs, and file those with the SEC on Form CRS.
"These regulatory actions bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations, while preserving retail investor access ... to a variety of investment services and products," Clayton said.
But while the SEC chief has maintained that the new rule will "substantially enhance" broker requirements from the existing standard set by the Financial Industry Regulatory Authority, critics including former SEC member Robert Jackson, the sole commissioner to vote against the regulation in June, have argued that the regulations are too ambiguous.
"Conflicts will continue to taint the advice American investors receive from brokers," Jackson said at the time, noting that the term "best interest" is not clearly defined.
While Wall Street has largely embraced the regulation, others, including state securities regulators, have said the regulation doesn't go far enough and are considering implementing stricter rules.
Clayton said firms that hold a majority of retail investor assets have already made "considerable progress" in adjusting business practices, beefing up policies and procedures, and aligning operations with the requirements.
"Over the past 10 months, the commission and the staff have engaged extensively with broker-dealers, investment advisers, retail investors and other market participants, as well as FINRA and other regulatory partners, regarding the implementation," he said.
--Editing by Brian Baresch.
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