Regulation Best Interest (Reg BI): The Four Obligations
Regulation Best Interest requires broker-dealers to act in the best interest of a retail customer when recommending a securities transaction or strategy, without placing the firm's interests ahead of the customer's. It has four obligations: disclosure, care, conflict of interest, and compliance.
The four component obligations
Disclosure: provide material facts about the relationship, fees, and conflicts. Care: exercise diligence in understanding the recommendation's risks, rewards, and costs. Conflict of interest: establish policies to identify and mitigate conflicts. Compliance: maintain written policies reasonably designed to achieve compliance with Reg BI.
Scope and timing
Reg BI applies to recommendations made to retail customers and has been in effect since June 30, 2020. Broker-dealers must also deliver Form CRS, a short relationship summary, to retail investors.
Frequently asked questions
What is Regulation Best Interest (Reg BI)?
Regulation Best Interest requires broker-dealers to act in the best interest of a retail customer when recommending a securities transaction or strategy, without placing the firm's interests ahead of the customer's. It has four obligations: disclosure, care, conflict of interest, and compliance.
How does Regulation Best Interest (Reg BI) show up on the exam?
Reg BI covers recommendations, not unsolicited orders. If the customer initiates the trade without a recommendation, Reg BI is not triggered.
Practice this concept
Sources
- SEC Regulation Best Interest (Exchange Act Rule 15l-1)
- SEC Form CRS
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