Senate Dems Call SEC Reg BI ‘Confusing,’ Prod FINRA for Answers
July 22, 2018 by Melanie Waddell
Three top Democrats on the Senate Banking Committee pressed the Financial Industry Regulatory Authority to provide its interpretation of the Securities and Exchange Commission’s standards of conduct package, calling Regulation Best Interest for brokers “confusing and ambiguous.”
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“Because FINRA serves as the primary regulator of the brokerage industry, your interpretation of the SEC’s proposal is critical to understanding how the proposal would affect retail investors,” Sens. Elizabeth Warren, D-Mass.; Sherrod Brown, D-Ohio; and Cory Booker, D-N.J., told FINRA CEO Robert Cook in their Friday letter.
The senators prodded Cook to provide FINRA’s views “promptly so that we and other interested parties can account for those views in any comments we submit to the SEC.”
The comment period on the advice package expires on Aug. 7. The senators asked that Cook provide answers to six questions before Aug. 3.
“Despite its title implying a much more stringent standard, this [Reg BI] proposal is unlikely, for several reasons, to give investors the peace of mind they deserve that the advice they are receiving is truly in their best interests,” the senators wrote.
The senators pointed out that the SEC commissioners have developed “remarkably different interpretations of what exactly the rule would require with regards to brokers’ potential conflicts of interest.”
The proposal “does not explicitly prohibit the most egregious sales practices that clearly incentivize brokers to put their own interests ahead of their clients, such as sales quotas and contests,” the senators write.
Absent a private right of action, “investors who have been cheated by broker-dealers will have to either rely on the SEC or FINRA to enforce the rule, or file a private claim most likely in FINRA’s arbitration forum,” they continued, which “means that FINRA will play a large role in implementing and enforcing the rule.”
The senators added that SEC commissioners “disagree about whether it [Reg BI] is similar to the DOL rule and ‘definitely a fiduciary principle,’ or whether it ‘essentially maintain[s] the status quo.’”
Whether or not Reg BI “will fulfill the SEC’s stated goal of raising the standard of conduct for broker-dealers may depend largely, if not almost entirely, on the way that FINRA interprets the rule and applies it in its disciplinary actions and arbitration proceedings,” the senators maintain.
Neither Congress nor the public “has heard from FINRA about its views on the SEC’s proposal,” they state.
The SEC’s proposed rule package “is long, complicated, and, in some important ways, ambiguous.”
