What Reg BI Requires
Reg BI requires broker-dealers to: (1) disclose material facts about the recommendation and the relationship; (2) exercise reasonable diligence, care, and skill in making recommendations; (3) have policies to address conflicts of interest; and (4) establish systems to achieve compliance. These are meaningful requirements but are subject to the debate about whether they equal a true fiduciary standard.
Reg BI vs. The Fiduciary Standard
Investment advisers registered under the Investment Advisers Act are held to a fiduciary standard that requires acting in clients' best interests in all respects — not just when making recommendations. Critics argue that Reg BI created a 'best interest lite' standard that sounds like a fiduciary standard but applies only to recommendations and includes significant exceptions for conflicts of interest.
PFOF and Reg BI
PFOF creates a conflict of interest between broker-dealers and their customers. Under Reg BI, broker-dealers must have policies to mitigate PFOF conflicts. Whether the required mitigation is adequate — essentially, disclosure and monitoring — or whether it should require structural changes like order competition, is the subject of ongoing regulatory debate.
Enforcement of Reg BI
The SEC has brought enforcement actions for Reg BI violations since the rule became effective. Enforcement has focused on the disclosure and conflict-mitigation requirements. Whether Reg BI enforcement will be sufficiently active to meaningfully change broker behavior depends on the SEC's investigative and enforcement resources and priorities under successive administrations.