Page 12 - Investment Advisor December 2022/January 2023

Beginnings

WASHINGTON WATCH

By Melanie Waddell

More Reg BI Cases in the Pipeline, Warns

FINRA Chief

FINRA’s upcoming cases include suitability and Reg BI violations; meanwhile,

the SEC says it is shifting its Reg BI exam focus to “making a recommendation”

probably be brought under both” the
suitability and Reg BI standards.

FIRST REG BI FINE
FINRA issued its first Reg BI-related
disciplinary move in mid-October by
fining a former registered rep $5,000
and issued a six-month suspension.
From July 2020 through November
2021, Charles V. Malico willfully vio-
lated Reg BI’s Care Obligation and also
violated FINRA Rule 2010 “by recom-
mending a series of transactions in the
account of one retail customer that
was excessive in light of the customer’s
investment profile and therefore was
not in that customer’s best interest,”
obert Cook, president and CEO will “continue to evolve in terms of FINRA’s order explained.
of the Financial Industry Regu- expectations and the depth of what At the time, Malico worked for
R latory Authority, said on Nov. 4 we’re looking for.” Network 1 Financial Securities in
that firms need to beef up their compli- Cook continued: “Anything that Huntington Station, New York, accord-
ance with the Securities and Exchange would be a violation of the old suitability ing to BrokerCheck. His client was a
Commission’s Regulation Best Interest, standard is now going to be a violation 63-year-old tax preparer with an annual
and noted that more Reg BI-related under the Reg BI standard.” income of roughly $100,000 and a liquid
enforcement cases are in the pipeline. FINRA’s suitability Rule 2111 still net worth of about $50,000.
Speaking at the ALI-CLE Life exists for non-retail customers, so where Although the client’s average account
Insurance Products Conference in Reg BI doesn’t apply, suitability contin- balance during the relevant period was
Washington, Cook said that FINRA’s ues to fill the gap. However, Reg BI goes less than $30,000, “Malico recommend-
Reg BI-related exams have been “evolv- farther than suitability. ed that he make more than 350 trades in
ing as [FINRA] has had more time with In fact, Cook said, FINRA has Reg his account,” which meant the individual
Reg BI and as firms have had more BI-related cases “in the pipeline that paid more than $54,000 in commissions
time” with the rule. FINRA exams straddle the two worlds, and they’ll and other trading costs, FINRA said.

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