COMPLYConnect 2023 is a wrap! The conference brought together more than 200 industry experts from across the country, all in the name of regulatory compliance education. Sessions ranged from generative AI to the SEC’s cybersecurity regulation to how to ensure regulation best interest (Reg BI) at your firm.
Now that COMPLYConnect 2023 is complete, we’re sharing some of the top takeaways we heard about Reg BI from our industry-leading speakers on the final day of the conference.
Top takeaways from day three of COMPLYConnect 2023 about Reg BI
Attendees have already gained some incredibly valuable insight, and we have more in store for them! These are some of the top takeaways from today’s sessions:
1. A lot of regulations are interpretative.
This means that there is room for different interpretations of what the regulations require. This can be challenging for businesses, as they need to ensure that they are complying with the regulations, but it is not always clear what is required.
InvestorCOM’s Parham Nasseri said “it might be helpful to look at this (Reg BI) through a data aspect” to get a clearer understanding of what’s required, during his session with COMPLY™ Client Engagement Consultant Nicole Del Rosario.
There are a number of ways that businesses can use data to approach interpretative regulations. For example, they can use data to identify the key areas of risk. By analyzing data on past enforcement actions and other sources, firms can identify the areas where they are most likely to be scrutinized by regulators. This allows them to focus their compliance efforts on these areas.
2. It’s crucial that your firm establish a consistent process of how to ensure Reg BI.
This will help to ensure that all your firm’s representatives are following the same standards when making recommendations to retail customers. This will help to reduce the risk of inconsistent recommendations and ensure that all customers are receiving fair and honest treatment.
“The best interest regime goes well beyond suitability,” Nasseri said. “Best interest takes it beyond that and says that at the time of recommendation: is this investment strategy?” then it goes “all the way down to the product in the investor’s best interest? If so, why?”
This is a key distinction between the suitability and best interest standards. Under the suitability standard, broker-dealers were only required to recommend investments that were suitable for the customer’s investment objectives and risk tolerance. Under Reg BI, however, broker-dealers must go further and consider the customer’s best interests when making recommendations.
This means that broker-dealers must now consider the customer’s individual financial situation, investment goals and risk tolerance, as well as the costs and risks associated with the recommended investment.
3. It’s crucial that your firm be able to prove it’s ensuring Reg BI.
Reg BI requires firms to document the basis for their recommendations to retail customers. This documentation must show that the firm considered the customer’s individual circumstances and needs, and that the recommendation was in the customer’s best interest.
“Before Reg BI, you would make notes in your CRM system and you would have meetings and discuss with clients, and you had fiduciary responsibilities before, but Reg BI takes it further than that,” Del Rosario said, requiring documentation.
4. Implementing technology might be helpful to ensuring your firm is in compliance with Reg BI regulations.
Technology can help firms comply with Reg BI in a number of ways. It can help firms automate tasks, improve data collection and analysis, generate and deliver disclosures and monitor compliance.
Some specific examples of technology that firms are using to comply with Reg BI include:
- Compliance management platforms.
These platforms can help firms to manage all aspects of their Reg BI compliance program, including policy and procedure development, training and monitoring.
- Trade monitoring systems.
These systems can help firms to monitor their trading activity for potential compliance violations, such as excessive trading or unusual commissions.
- Customer relationship management (CRM) systems.
These systems can help firms to collect and store data on their clients, including their risk tolerance and investment objectives. This data can be used to generate personalized recommendations and disclosures.
- Document management systems.
These systems can help firms to store and manage electronic documents, such as client agreements, investment recommendations and disclosures.
5. Firms using technology to help ensure Reg BI compliance should introduce it early into the process.
Del Rosario said that technology is probably “most effective early in the process, before you start allocating because you need to know what’s your client’s objectives and what are the risk factors.”
It’s important to have a clear understanding of the client’s objectives and risk factors before making any recommendations. Technology can help firms to collect and analyze this information more efficiently and accurately.
In addition, introducing technology early in the process can help firms avoid concerns from regulators. If firms can demonstrate that they have used technology to carefully consider the client’s best interests, regulators are less likely to take issue with their recommendations.
Complying with the COMPLY portfolio
How can your firm ensure Reg BI? With a reliable partner who takes compliance just as seriously as you do! Meet COMPLY.
During last year’s COMPLYConnect, we officially announced the launch of COMPLY, the new parent brand for the ComplySci®, RIA in a Box®, NRS® and illumis® companies. A year later, we’re still helping compliance professionals and teams adapt to the ever-changing regulatory landscape.
COMPLY offers tailored consulting and technology services to help your firm identify and address compliance risks. By utilizing COMPLY’s tools and solutions, your firm can ensure it has a thorough compliance program that complies with Reg BI standards and protects clients’ and investors’ interests.
We also offer events like COMPLYConnect to help compliance professionals help their firms comply with confidence. Attendees gained incredibly valuable insight during this year’s event, and you can, too, during next year’s conference!