According to FINRA, JVM Securities, LLC, based in Oak Brook, Illinois, was censured and fined $60,000 for willfully violating Regulation Best Interest (Reg BI) and failing to establish adequate supervisory systems. The firm was also required to certify that it has remediated the issues identified and implemented a reasonably designed supervisory system, including written supervisory procedures.
Regulation Best Interest, which took effect in June 2020, requires broker-dealers to act in the best interest of their retail customers when making securities recommendations. This includes establishing and maintaining written policies and procedures reasonably designed to achieve compliance with the regulation. The rule was adopted by the Securities and Exchange Commission to raise the standard of conduct for broker-dealers beyond the previous suitability standard, requiring firms to consider costs, reasonably available alternatives, and conflicts of interest when making recommendations.
The findings revealed that JVM Securities willfully violated Reg BI by failing to establish and maintain written policies and procedures and a supervisory system reasonably designed to achieve compliance with the regulation. The firm acted as a placement agent for private placement offerings that it recommended to retail customers, yet during a majority of the relevant period, its written policies and procedures contained no provisions relating to Reg BI whatsoever. This is a significant gap, as private placements are inherently higher-risk investments that require careful suitability and best interest analysis.
The firm also failed to have a supervisory system, including written supervisory procedures, reasonably designed to achieve compliance with its customer relationship summary (Form CRS) obligations. Form CRS is a disclosure document that broker-dealers are required to provide to retail investors, summarizing the types of services offered, fees and costs, conflicts of interest, and disciplinary history.
Additionally, the firm failed to timely file required documents related to three private placements and failed to have a supervisory system reasonably designed to comply with FINRA's filing requirements. The required filings were made almost two years late and only after FINRA specifically requested that the firm do so.
For investors, this case highlights the importance of Regulation Best Interest as a safeguard. Investors should ask their broker-dealer whether the firm has written policies for Reg BI compliance, and they should request and review the firm's Form CRS before opening an account. If a firm cannot produce these documents promptly, investors should consider it a red flag and look elsewhere for financial services.
