Page 37 - Investment Advisor January/February 2022

THE PLAYING FIELD

By Melanie Waddell

Expect Reg BI Enforcement Actions and

More Crackdowns in 2022

Susan Schroeder, Phyllis Borzi and others discuss big developments afoot

at the SEC and Labor Department.

et ready: The Securities and Recent SEC deficiency letters related
Exchange Commission will to Reg BI exams, Schroeder said, have
G be active this year in levy- focused on whether and how firms and
ing enforcement actions related to their registered reps “consider reason-
Regulation Best Interest (and more on ably available alternative investments,
Form CRS), while the Labor Department which is a new requirement imposed by
will push for a fiduciary rule that tight- Reg BI.” So expect enforcement activity
ens rollover and insurance product rec- “related to that requirement, especially
ommendations, industry experts say. in cases where firms may be recom-
“I think we’ll see a significant increase mending higher-cost or complex securi-
in Reg BI enforcement during 2022,” ties to retail investors.”
said Susan Schroeder, former head of Jim Lundy, partner in Faegre Drinker’s
enforcement at the Financial Industry Chicago office and a former SEC attor-
Regulatory Authority who is now vice ney, expects to “start to see the first Reg
chair of the securities department at BI enforcement actions” this year.
‘Because Reg BI is the law firm WilmerHale. “Last year Exams taking place in late 2021 “were
such a priority for the was the first year we could expect any particularly focused and detailed,” he
enforcement activity and while the SEC
continued, and “it is reasonable to pre-
SEC, we can expect brought a number of matters concerning sume that the Division of Examinations
very significant Form CRS, those cases were not based has been looking for and will continue to
look for good candidates to refer to the
on complex fact patterns and did not
fines in matters require significant investigation.” Division of Enforcement.”
Based on the enforcement division’s
The SEC, Schroeder continued, “has
where the staff now had time to examine firm practices, history, “the first enforcement actions
alleges customers and we’ll see a focus on enforcing” Reg BI. will likely involve settlements and cases
designed to send messages to the indus-
How big will the Reg BI enforcement
were harmed.’ fines be? “Because Reg BI is still relative- try,” Lundy said. But keep in mind, he
ly new, there is less precedent that will noted, “that for violations of Reg BI
—Susan Schroeder, govern the SEC’s penalty decisions — and that the Division of Enforcement need
former enforcement SEC leadership has already stated that it not establish scienter. That means that
may not be constrained by past penalties
negligence-based violative conduct will
head at FINRA to determine new fines,” Schroeder said. be sufficient.”
Cases “that solely involve compliance Over the past five years or so, “the
failures (such as insufficient policies and number of negligence-based cases (as
procedures) may not be accompanied opposed to scienter-based cases) has
by outsized fines,” she continued. But greatly increased. That is a trend that we
“because Reg BI is such a priority for should expect to continue” under SEC
the SEC, we can expect very significant Chairman Gary Gensler, Lundy said.
fines in matters where the staff alleges Schroeder recommends that firms
customers were harmed.” focus on policies and procedures,

JANUARY/FEBRUARY 2022 INVESTMENT ADVISOR 35