Reg. BI – Compliance and Recordkeeping
The Compliance Obligation
As with Reg. BI’s Conflict of Interest Obligation, the Compliance Obligation applies solely to the broker-dealer entity, and not to associated persons.[1]
The Compliance Obligation requires you to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Reg. BI. The SEC would like you to know that the obligation allows you flexibility to establish compliance policies and procedures that accommodate your business model.
You won’t be surprised to learn that whether compliance policies and procedures are reasonably designed will depend on the facts and circumstances of a given situation. You should consider the nature of your operations designing your policies and procedures to (1) prevent violations from occurring, (2) detect violations that have occurred, and (3) promptly correct any violations that have occurred.
Your policies and procedures should be reasonably designed to address the scope, size, and risks associated with your operations and the types of your business. A B-D with a wide range of customers and a vast array of different product lines will obviously have a more onerous burden under Reg. BI than one with a more limited scope of each.
A reasonably designed compliance program generally would also include:
controls;
remediation of non-compliance;
training; and
periodic review and testing.
Record-making and Recordkeeping
In addition to your existing record-making and recordkeeping obligations, Reg. BI requires more of the same with respect to certain information collected from and provided to retail customers.
Whenever you make a recommendation to a retail customer, keep a record of all information collected from and provided to the retail customer under Reg. BI, as well as the identity of each associated person responsible for the account. You have to retain these records for at least six years after the earlier of (1) the date the account was closed or (2) the date the information was replaced or updated.
[1] In Cady’s Regulation Best Interest series, we’ll largely be breaking down the SEC’s Small Entity Compliance Guide into smaller chunks and, we think, easier language.