Keeping up with the regulators: How to build an effective compliance programme to satisfy the Best Interest care obligation

Stephanie Nicolas and Joshua Nathanson
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Stephanie Nicolas: Partner, WilmerHale, USA
Joshua Nathanson: Associate, WilmerHale, USA

Journal of Financial Compliance, 2024, vol. 8, issue 2, 131-143

Abstract: Over the past couple of years, the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) have significantly increased their Regulation Best Interest (Reg BI) enforcement efforts. Broker-dealers will need to act fast, as the pace of enforcement picks up and regulators issue guidance regarding their expectations for broker-dealers and their associated persons. This paper is intended for legal and compliance professionals designing a Reg BI compliance programme. It draws from recent SEC and FINRA guidance and enforcement actions, and it highlights some practical issues as well as potential solutions. The paper begins by discussing the differences between Reg BI and the Advisers Act fiduciary standard. It then provides some general considerations regarding the scope and application of Reg BI. The paper continues with an analysis of recent guidance and enforcement actions related to the care obligation, which has been a focus for both the SEC and FINRA. Finally, the paper concludes with some commentary on Reg BI issues related to the use of artificial intelligence by broker-dealers.

Keywords: Regulation Best Interest; broker-dealers; investment recommendations; artificial intelligence; Securities and Exchange Commission; FINRA (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2024
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