SEC maintains deadline for Reg BI

The major investment-advice rule remains on track despite calls to delay implementation amid the COVID-19 crisis

The Securities and Exchange Commission will maintain it’s planned deadline for implementation of a major investment-advice rule, Chairman Jay Clayton said in a statement on Thursday.

Financial firms must comply by June 30 with Regulation Best Interest, which is meant to raise the advice standard for brokers. They also must prepare a client relationship summary, known as Form CRS, that outlines their fees, services and conflicts of interests and describes the differences in those areas between brokers and investment advisers.

For the past several weeks, the SEC has been granting regulatory relief in a number of areas – such as extending the deadline for the filing of investment adviser registration forms – in response to the dislocations caused by the COVID-19 outbreak. Many financial firms are now working remotely, as is the SEC staff.

But the SEC is keeping the pace on Reg BI and Form CRS, the main components of an advice-reform regulatory package approved by the SEC last June. The changes were designed to illuminate and reduce conflicts of interest for brokers and move the broker standard closer to a fiduciary duty that will continue to govern adviser interactions with their clients.

Trade associations representing investment advisers and brokers had been pushing the SEC to delay the Reg BI deadline.

“I’m a little surprised, honestly,” Karen Barr, chief executive of the Investment Adviser Association, said of the SEC’s decision. “We had asked the staff to provide more time for Form CRS implementation under the circumstances, and we are disappointed no adjustment was made to the deadline.”

In his statement, Clayton promoted the investor-protection aspects of Reg BI and said they must be put in place on schedule. He also said firms “have made considerable progress” in adjusting their business practices, changing their policies and procedures and aligning their operations to meet Reg BI and Form CRS mandates.

“Based on that engagement — and because the continued implementation of these conduct and transparency initiatives, individually and collectively, will significantly benefit Main Street investors — we believe that the June 30, 2020, compliance date for Reg BI and other requirements, including the requirement to file and begin delivering Form CRS, remains appropriate,” Clayton said.

He said firms that have trouble complying with the Reg BI deadline because of operational challenges due to the coronavirus pandemic should contact the SEC.

“I expect that the commission and the staff will take the firm-specific effects of such unforeseen circumstances (and related operational constraints and resource needs) into account in our examination and enforcement efforts,” he said.

The Financial Services Institute, which represents independent broker-dealers and financial advisers, said it is comfortable maintaining the June 30 Reg BI deadline as long as the SEC eases up on enforcement.

“With the onset of the COVID-19 crisis, we have requested the SEC delay enforcement of Regulation Best Interest (Reg BI) – not delay the implementation date,” David Bellaire, FSI executive vice president and general counsel, said in a statement. “We are encouraged by today’s comments from Chairman Clayton about the SEC’s willingness to work with firms. This will assist our members as they help Main Street investors navigate these uncertain times while continuing to work diligently to comply with Reg BI.”

The SEC will issue two risk alerts in coming days to provide additional information to brokers and investment advisers. One will focus on the scope and content of initial Reg BI examinations. The other will focus on Form CRS.

“We have been advising our members all along to prepare for this,” Barr said of the deadline remaining in place. “Everyone is going to make their best good-faith effort to do it.”