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  • Writer's pictureDeborah

On August 3, 2022, the U.S. Securities and Exchange Commission (SEC) issued a Staff Bulletin reminding broker-dealers and investment advisers (IAs) of their obligation to identify and address conflicts of interest in line with the requirements under Regulation Best Interest applicable to broker-dealers and the fiduciary standard for investment advisers under the Investment Advisers Act of 1940.

Presented as questions and answers, the Staff Bulletin includes some of the following topics :

  • Situations where conflicts may arise

  • Examples of conflicts of interest for broker-dealers, investment advisers, or financial professionals

  • A reminder regarding the requirement for firms to establish, maintain and enforce written policies and procedures reasonably designed to identify all conflicts of interest related to recommendations to retail customers

  • A non-exhaustive list of steps to take in order to identify conflicts of interest (e.g. conflict definition in accordance with the firm’s activities, ongoing and regular, periodic process to identify conflicts ...)

  • An emphasis on the fact that disclosure alone is not satisfactory as mitigation may be required

  • Situations where conflicts should be eliminated (for example where mitigation is not possible…)

  • Relevant factors that should be taken into account to mitigate conflicts of interest (e.g. the sources of the firm’s compensation, revenue, or other benefits – financial or otherwise -- whether or not it receives them directly from the retail investor, whether or not the firm or its affiliates recommend or provide advice about proprietary products…)

  • Examples of potential mitigation methods for compensation arrangements for financial professionals

  • The requirement to, at a minimum, fully and fairly disclose all material facts relating to a conflict of interest

  • Examples of facts relating to conflicts of interest associated with compensation or benefits that should be disclosed to retail investors

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