According to FINRA, Harpeth Securities, LLC was censured and fined $35,000 for willfully violating Regulation Best Interest (Reg BI) by failing to establish written policies and procedures and a supervisory system reasonably designed to achieve compliance.

The firm acted as a placement agent for two private placements, recommending them to approximately 490 retail investors. Despite the firm's awareness of Reg BI's implementation date, the firm's written policies and procedures contained no provisions relating to Reg BI. The firm failed to establish a supervisory system reasonably designed to achieve compliance with Reg BI's requirements, including the Care Obligation and Conflict of Interest Obligation.

The firm also failed to establish a supervisory system for compliance with Form CRS obligations. The firm's written supervisory procedures contained no provisions relating to Form CRS requirements. The firm only established written policies and procedures relating to Reg BI and Form CRS after FINRA initiated its investigation.

Reg BI establishes a best interest standard of conduct for broker-dealers and their associated persons when making recommendations to retail customers. It requires firms to act in the best interest of retail customers at the time a recommendation is made, without placing the firm's or associated person's interests ahead of the customer's interests. The regulation includes specific obligations related to disclosure, care, conflict of interest, and compliance.

This case demonstrates that firms cannot simply ignore new regulatory requirements. Even when serving as placement agents for private offerings to retail investors, firms must have adequate supervisory systems to ensure compliance with Reg BI and Form CRS requirements. Investors working with broker-dealers should understand they are entitled to best interest treatment under Reg BI when receiving investment recommendations.