Questions mount over SEC's upcoming Reg BI deadline
The regulator has yet to say whether it will consider pushing back the June 30 effective date of its new standard for brokers, but the challenges posed by the coronavirus outbreak are increasingly apparent.
A Securities and Exchange Commission (SEC) executive acknowledged that the agency is at least ‘aware’ of an expectation in the industry that it could delay the implementation of Regulation Best Interest, multiple reports suggested.
The spread of the Covid-19 virus and ensuing upheaval has already led the agency to extend the filing deadline for advisors’ Form ADV, as long as firms can demonstrate they were unable to file on time because of the coronavirus.
On a Monday conference call, Pete Driscoll, the agency’s director of compliance, inspections and exams, reportedly declined to say whether the June 30 effective date of the new standards for brokers would be pushed back, although he said the possibility had been brought to the attention of SEC leadership.
According to a Financial Planning report, Driscoll, when questioned during the call about the possible delay, would not say if the commission leadership was leaning in one direction or another.
‘I can’t answer that right now because I don’t know the answer,’ he was quoted as saying. ‘It is certainly something that’s been raised and we’re aware of it. It’s something that’s been passed on.’
The SEC declined to comment. The National Society of Compliance Professionals, which sponsored the ‘Navigating the Regulatory Environment in Response to Covid-19’ conference call cited in the reports, said the call was closed to non-members.
Driscoll’s reported comments were generally confirmed by sources with access to the webinar recording.
David Mrazik, a managing partner at RIA investor Merchant Investment Management, said while a temporary delay in Reg BI might very well be in the cards, firms still need to prepare as if that’s not the case and shouldn’t count on getting a free pass.
‘It’s absolutely prudent for a delay to be considered,’ he said. ‘I think there’s a lot of focus right now on making sure fiduciaries and broker-dealers alike can be there for their clients at this point, where the markets are tumultuous. It’s of paramount importance for these firms to be able to serve their clients first.’
A former managing partner at MarketCounsel and Hamburger Law Firm, Mrazik said he wouldn’t be surprised if the SEC changes its priorities in the near-term to address the coronavirus crisis. For instance, he said ensuring information security will likely be near the top of the SEC’s to-do list, in light of the fact that most advisors and regulators will be working remotely for the foreseeable future.
‘Imagine a world where, instead of a firm having one or two or three offices, it has 10, 20, 30, 40 or 50 people now logging in remotely and accessing information and data from remote systems on their home computers,’ Mrazik said. ‘There are vulnerabilities around that to a degree we haven’t seen before in this industry.’
In the long term, Mrazik said Reg BI isn’t going anywhere. ‘If anything, it would be a temporary delay, but I don’t see them completely shifting course away from this,’ he said.
According to the Financial Planning report, Driscoll said SEC examiners are working remotely and that in-person exam would be on hold for the foreseeable future. He also acknowledged that everyone’s business continuity plan (BCP) is basically out of the window for now.
‘These are extraordinary times,’ he was quoted as saying. ‘We want you to take advantage of the relief to the extent you need it. No one’s BCP plan is working well right now.’