Allison Lagosh, Compliance Advisor and Director for Saifr®, recently shared her experience and observations from the FINRA Annual Conference. The annual conference serves as an insightful platform to discuss future-focused themes in the FinTech industry, offering an opportunity to leave behind the daily grind and delve into the industry’s key issues.
One of the main themes of this year’s conference was Regulation Best Interests (Reg BI), which is becoming a prominent concern for examination. As a critical aspect of their operations, broker/dealers need to act in their customers’ best interests during communications, being transparent about any potential conflicts of interest. A significant aspect of the discussions centred around the rigorous application of Reg BI to bespoke communications that make a recommendation.
To illustrate the importance of Reg BI, the SEC has charged a leading securities firm and five brokers for violation of the care obligation under Reg BI. The accused parties allegedly failed to properly assess and disclose the risks, rewards, and costs of certain debt securities and recommended the investment to at least seven clients without sufficient basis for believing it served their best interests.
Another pressing issue discussed at the conference was the record-keeping of off-channel communications. These are unapproved forms of business discussions conducted by members of organisations that fall under FINRA and SEC regulations. With the constant evolution in communication methods such as texts, online chats, and DMs, maintaining a clear demarcation between personal and business communications, particularly for record-keeping, becomes a significant challenge.
Underlining the importance of this matter, the SEC fined broker/dealers and one associated investment advisor $1.1bn for “widespread and long-standing failures” in their communication practices. This includes their inability to meet record-keeping requirements, especially for private communications conducted through personal text messages and platforms like WhatsApp. The firms affected by this were some of the biggest players in financial services, each agreeing to pay $125m to settle the charges. The SEC Chair, Gary Gensler, mentioned that since the earlier fines of $5-10m did not have a significant effect, a larger fine might create the necessary impact.
Lagosh concluded that the FINRA Annual Conference was a reminder that the industry must consistently strive to inform and protect customers. The sense of community at the conference, with participants agreeing on the importance of serving the public and clients’ best interests, was palpable.
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