The SEC has issued more responses to frequently asked questions about Regulation Best Interest as well as about Form CRS, which have a compliance deadline of June 30.
In the FAQ released last month, the SEC addressed questions on the definition of a “recommendation,” what types of communications are subject to the new regulation, the timing of disclosures, the use of incentives and potential mitigation methods to comply with Reg BI, as it’s known.
In the current FAQ on Reg BI, the SEC’s Division of Trading and Markets delves into what constitutes a retail customer’s “use” of a recommendation, defining it as any time that a recommendation results in the opening of a brokerage account, regardless if a broker-dealer receives compensation; any securities transaction or investment strategy in an existing account, again regardless of compensation; and any securities transaction that results in compensation to the broker-dealer even if the customer doesn’t have an account with the firm.
The FAQ also specifies that Reg BI applies to limited-purpose broker-dealers, such as those that make recommendations of private offerings to accredited investors. Additionally, the FAQ says that the term “legal representative” applies only to non-regulated legal representatives, such as executors, conservators, and persons holding a power of attorney.
Furthermore, a retail customer cannot waive the protection of Reg BI, according to the FAQ.
The Division of Trading and Markets also delves deeper into what types of recommendations are covered by Reg BI and additional considerations for dually-registered professionals and associated persons of a broker-dealer of firms that are dual registrants. The FAQ also states that a recommendation to open a self-directed brokerage account is still covered by the regulation.
The FAQ on Form CRS covers some of the same topics, such as the definitions of “retail investor” and “legal representative” and delivery requirements. It also clarifies the format of the form; who is exempt from delivering the form; and how to treat existing customers, affiliate services, qualified custodians, subadvisor changes and disclosures of disciplinary history. Additionally, firms can deliver the form in languages other than English as long as they also deliver a separate form in English at the same time, according to the FAQ.
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