Regulation Best Interest, commonly called Reg BI, as well as Form CRS, are two major concerns of the Financial Industry Regulatory Authority, a private company that regulates brokerages and markets in New York and around the country. Both of these are still among the main focal points in FINRA’s regulatory operations programs for 2023, which the organization detailed in its 75-page report on Jan. 10.
What member firms need to know
A reminder of these changes was given to stakeholders when the organization published its examination report for 2023. The observations that are detailed in this report underline the importance for all member firms to stay on top of any new securities law guidance and interpretations from the SEC.
It’s obviously crucial that firms learn this information as soon as possible so they’ll know when it will become necessary to change their approach and update their practices to ensure compliance with these regulations. FINRA has stated that it will continue to share its additional findings as they come in. The organization is still in the process of conducting exams and gathering more information about the practices of various firms.
Where FINRA found compliance failures
In the report, FINRA has also observed what might turn out to be problems with certain mobile applications. Some of these apps aren’t doing enough to differentiate themselves from products and services of affiliates, broker-dealers or third parties. This is particularly an issue with the transaction of crypto assets.
FINRA also found some potential compliance conflicts when a product or service that is deemed to be a high risk to consumers is offered by an app. In some instances, it might need to do more to disclose and explain that risk.
A key example of compliance issues with the care obligation set forth in Reg BI included transaction recommendations that were too high. This tended to happen when the investment profiles of retail customers were taken into account, or there were sometimes excessively steep cost-to-equity and turnover ratios. Another way people failed to comply with Reg BI obligations was by having a profile that was missing complete and accurate information for their retail customers to see.