Broker-traders and everyone associated in the business have to comply with stringent reporting requirements.
However, these regulations are about to get even more complicated on June 30 when the U.S. Securities and Exchange Commission’s (SEC) new rules to protect retail investors snap into action.
The biggest part of the changes is the Regulation Best Interest rule, which will add to the already significant administrative burden broker-traders face.
As MirrorWeb, the RegTech firm, explained in a recent article, the scope of this includes keeping a record of trade tickets, calls, spreads and customer account profile info among other things for up six years. Duplicate copies must be stored elsewhere.
But, the new rules are about to make it even more complicated. The SEC introduced them as part of a new regulatory package in June 2019.
“This rulemaking package will bring the legal requirements and mandated disclosures for broker-dealers and investment advisers in line with reasonable investor expectations, while simultaneously preserving retail investors’ access to a range of products and services at a reasonable cost,” Jay Clayton, chairman of the SEC, said at the time.
MirrorWeb explained that Regulation Best Interest will require “broker-dealers act in the best interest of retail customers.”
The new rules will provide “guidance as to the fiduciary obligations to which an investment adviser is subject to with clients, clarifies the ability of the broker-dealer to provide advice that is ‘solely incidental’ to its transaction execution services without being required to register as an investment adviser.”
The RegTech company added that many of the requirements deal with disclosure of “information for retail clients, thorough due diligence and the establishment of policies to avoid conflicts of interests” as well as new record keeping requirements.
Now broker-traders must create a new record for every retail customer they give a recommendation to.
As MirrorWeb explained, the risk of falling foul to these new rules could be costly. The old regulations, 17a-3 and 7a-4, has already yielded fines of up over $1m.
“Leading financial services firms are using the MirrorWeb Archiving Platform to help solve these challenges,” MirrorWeb said. “The platform enables you to capture, archive and monitor electronic communications to meet the compliance requirements of MiFID II, FCA, GDPR and FINRA.”
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