Memo #
32545

FINRA Adopts Amendments to Suitability and Related Rules to Conform to Reg BI
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[32545]

June 22, 2020 TO: ICI Members
Bank, Trust and Retirement Advisory Committee
Broker/Dealer Advisory Committee
Internal Sales Managers Roundtable
Investment Adviser and Broker-Dealer Standards of Conduct Working Group
Operations Committee
Pension Committee
Pension Operations Advisory Committee
Sales and Marketing Committee
Small Funds Committee
Transfer Agent Advisory Committee
Variable Insurance Products Advisory Committee SUBJECTS: Compensation/Remuneration
Compliance
Disclosure
Distribution
Fees and Expenses
Pension
Portfolio Oversight
Variable Insurance Products RE: FINRA Adopts Amendments to Suitability and Related Rules to Conform to Reg BI

 

In March, the Financial Industry Regulatory Authority, Inc. (FINRA) filed with the Securities and Exchange Commission proposed amendments to FINRA’s suitability rule and certain of its other rules, to conform to the SEC’s adoption of Regulation Best Interest (“Reg BI”).[1] The SEC has approved the amendments, which will become effective on June 30, 2020, the compliance date of Reg BI.[2]

As proposed, FINRA amended Rules 2111 (Suitability), 2310 (Direct Participation Programs), 2320 (Variable Contracts of an Insurance Company), 2341 (Investment Company Securities), 5110 (Corporate Financing Rule – Underwriting Terms and Arrangements), and Capital Acquisition Broker (CAB) Rule 211 (Suitability). The amendments: (1) revise the FINRA and CAB suitability rules to state that the rules do not apply to recommendations subject to Reg BI and remove the element of control from the quantitative suitability obligation under Rule 2111, consistent with Reg BI; and (2) conform the rules governing non-cash compensation to Reg BI’s limitations on sales contests, sales quotas, bonuses, and non-cash compensation.

 

Sarah A. Bessin
Associate General Counsel

 

endnotes

[1] For a summary of FINRA’s proposed amendments, please see ICI Memorandum No. 32295 (March 17, 2020), available at https://www.ici.org/my_ici/memorandum/memo32295.

[2] See FINRA Regulatory Notice 20-18, Reg BI-Related Changes to FINRA Rules (June 19, 2020), available at https://www.finra.org/sites/default/files/2020-06/Regulatory-Notice-20-18.pdf.