Regulation Best Interest (Reg BI) is a set of rules that the United States Securities and Exchange Commission (SEC) adopted in June 2019. The purpose of Reg BI is to enhance the standards of conduct for broker-dealers and their registered representatives when making recommendations to retail clients.
Reg BI, broker-dealers to act in the best interests of their retail customers when they recommend any securities transactions or investment strategies. This standard of conduct is the “best interest obligation.”
Reg BI requires broker-dealers to disclose any conflicts of interest that may influence their recommendations and to adopt policies and procedures to mitigate such conflicts. For example, a broker-dealer must disclose any financial incentives it may receive for recommending certain products or services to its customers.
Reg BI also requires broker-dealers to exercise reasonable diligence, care, and skill when making recommendations to retail clients. This includes understanding the risks, rewards, and costs associated with a recommendation and considering the customer’s investment profile, including their financial situation, investment experience, and risk tolerance.
Overall, the regulator’s intended purpose with Reg BI is to provide greater transparency and accountability in the relationship between broker-dealers and their retail customers, and to raise the standard of care that broker-dealers owe to their clients.
Other Resources on Regulation Best Interest:
Regulation Best Interest, Form CRS and Related Interpretations (SEC)
See also:
Accredited Investor Definition