The component of Regulation Best Interest requiring a broker-dealer to establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole, as distinct from the narrower policies aimed specifically at conflicts of interest.
Practice questions using Reg BI Compliance Obligation
Original questions written against the published FINRA and NASAA exam content outlines — not actual exam questions. Every choice is explained.
Regulation Best Interest is satisfied through four component obligations. They are...
A.Suitability, Know Your Customer, Fair Dealing, and Best ExecutionThese are related rules but not the four named Reg BI obligations.
B.Care, Loyalty, Prudence, and ImpartialityThese describe fiduciary-style duties, not the four Reg BI obligations.
C.Disclosure, Diligence, Documentation, and DeliveryThis is not the correct list of Reg BI obligations.
D.Disclosure, Care, Conflict of Interest, and ComplianceCorrect — these are the four component obligations of Reg BI.
Why: Reg BI comprises the Disclosure, Care, Conflict of Interest, and Compliance obligations. Meeting all four fulfills the overall best-interest standard.
Ironvale Capital's compliance department is mapping each of Regulation Best Interest's four component obligations to one specific internal control. Which control most directly satisfies the COMPLIANCE Obligation, as opposed to the other three obligations?
A.Delivering the firm's relationship summary to every retail investor before or at the earliest recommendation.That addresses a separate SEC delivery requirement, not the Compliance Obligation.
B.Requiring representatives to document the reasonably available alternatives they considered before each recommendation.That supports the Care Obligation, which governs the quality of the recommendation itself.
C.Eliminating sales contests, quotas and bonuses based on the sale of specific securities within a limited period.That is the Conflict of Interest Obligation, which targets particular incentive conflicts.
D.Establishing, maintaining and enforcing written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole.Correct. Firm-wide written policies and procedures aimed at Reg BI in its entirety are the Compliance Obligation.
Why: Reg BI's four components are Disclosure, Care, Conflict of Interest, and Compliance. The Compliance Obligation is the firm-level backstop: the broker-dealer must establish, maintain and enforce written policies and procedures reasonably designed to achieve compliance with Regulation Best Interest as a whole. It is distinct from the Conflict of Interest Obligation, which requires policies aimed specifically at identifying and addressing conflicts.
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