COMPLIANCE
Compliance
Necessary evil that ’ s good for business
The financial services industry appears to have entered a new era of regulation , as evidenced by a flurry of new laws over the past few years , both proposed and enacted . Coming at us from both a state and federal level , it can be overwhelming to understand and implement them confidently . Compliance with regulations , however , is not just a necessary evil , it ’ s good for business . Understanding your unique risks and building systems to mitigate them can pay off handsomely , while ignoring regulations is a gamble you likely can ’ t afford .
Here is a high-level overview of a few regulatory topics to pay attention to in 2022 .
A higher standard of care
There is a definite trend toward requiring producers to utilize a higher standard of care when making recommendations to clients . Consider the following :
Maureen James , FLMI , AIRC , ACS , Co-Owner , Summit Compliance Group , LLC . With over three decades in Insurance and Investment Compliance , Maureen serves the unique compliance needs of independent Agents , Advisors and IMOs with a strong emphasis on Advertising and RIA Compliance Services .
The NAIC updated the Suitability in Annuity Transactions Model Regulation (“ the Model ”) to require a best interest standard of care . As of this article , twenty-one states have adopted it . Another 15 states are currently working on proposals to adopt it or have already proposed it . The Model imposes four obligations on producers : Care ( including a best interest standard ), Disclosure , Conflicts of Interest , and Documentation . The SEC has also moved away from the suitability standard to a best interest standard with the issuance of Regulation Best Interest (“ Reg BI ”). Reg BI imposes the best interest standard on broker-dealers and their associated persons when making recommendations to retail customers . The SEC also requires broker-dealers and investment advisers to provide customers with Form CRS (“ Customer Relationship Summary ”), which is a relationship summary disclosure document . The DOL has changed their interpretation of who is an investment advice fiduciary , created a new exemption ( PTE 2020-02 ) and affirmed the use of an old exemption ( PTE 84-24 ) for insurance transactions . Many producers who didn ’ t used to meet the definition of an investment advice fiduciary suddenly found themselves meeting the definition and are thereby now forced to utilize an exemption ( PTE 2020-02 or PTE 84-24 ). The stakes are high , as penalties for non-compliance could include the potential for a ten-year prohibition from dealing with ERISA retirement accounts and IRAs .
36 Perspectives Q2 2022