SEC Announces Exam Focus on Compliance with Form CRS and Regulation Best Interest

Investment Management Update

Date: April 15, 2020

On April 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued two risk alerts announcing that regulatory exams occurring after the compliance date for Form CRS and Regulation Best Interest (Reg BI), June 30, 2020, will assess how well firms have implemented policies and procedures to ensure compliance with those new requirements.

As we discussed in a prior client alert, investment advisers and brokers serving retail clients will soon be required to file and deliver to clients a client relationship summary on Form CRS that outlines key aspects of the firm’s services. In addition, Reg BI, which requires that brokers put their retail customers’ best interests ahead of their own financial interests when making investment recommendations, will require brokers to comply with specific disclosure, care, conflict of interest and compliance obligations.

In the risk alerts, OCIE confirms that initial examinations of brokers and advisers occurring after the compliance date will:

  • assess whether firms have filed, delivered and posted Form CRS as required;
  • determine whether the Form CRS content and format requirements have been met;
  • evaluate whether Form CRS recordkeeping processes have been implemented; and
  • consider whether and to what extent brokers have established and implemented policies and procedures reasonably designed to achieve compliance with Reg BI’s disclosure, care, conflict of interest and compliance obligations.

Importantly, OCIE also discusses with some particularity how the staff anticipates assessing compliance with Form CRS and Reg BI. It notes specific questions the staff may ask, what documents may be requested and what disclosures the staff might expect to see. Firms required to comply with Form CRS and/or Reg BI should review the guidance provided in the risk alerts and evaluate whether they need to update their anticipated compliance processes.

We will review any additional guidance released on Form CRS and Reg BI compliance and keep you informed. Please don’t hesitate to reach out to us with questions regarding the new requirements.

FOR MORE INFORMATION

For more information, please contact:

Craig A. Foster
614.469.3280
Craig.Foster@ThompsonHine.com

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