Finra will defer to SEC on interpreting best interest rule

Finra CEO Cook: 'It's not our rule. It's an SEC rule.'

Sep 9, 2019 @ 4:17 pm

By Mark Schoeff Jr.

When a new investment advice standard for brokers is implemented next June, Finra will be responsible for examining brokers for compliance. But the Securities and Exchange Commission will make the final call on determining how the regulation will work.

"It's not our rule. It's an SEC rule," Finra chief executive Robert W. Cook told state regulators on Monday at the North American Securities Administrators Association annual conference in Austin, Tex.

Mr. Cook said the Financial Industry Regulatory Authority Inc. often conducts examinations on SEC rules. On Reg BI, the broker regulator needs "to develop a really good process with the SEC" to handle questions that will come up during exams, he said.

"I don't want us to be interpreting the rule," Mr. Cook said.

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Mr. Cook said Finra is working with the SEC on exam modules and examiner training in preparation for the June 30, 2020, implementation date.

In June, the SEC approved a regulatory package that centers on Regulation Best Interest, a measure designed to raise the broker advice requirement above the current suitability standard. Suitability is a Finra rule, and many elements of it have been incorporated within Reg BI.

Under Reg BI, Finra will have to review its own rulebook. The regulator could keep parts of the suitability rule and modify other parts.

(More: Reg BI creates certainty and provides investors with a choice)

"Maybe we don't need [suitability] any more for investors who are covered by Regulation Best Interest," Mr. Cook said in an interview. "We need to go through a rulemaking process to figure it out."

Mr. Cook characterized the advent of Reg BI as "a meaningful change" for Finra. Like the member brokerages it regulates, Finra also is preparing for the June 30 deadline.

"We have our work to do, just as the industry has its work to do," Mr. Cook said.


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