Author: Alisha Dowell
On April 7, 2020, the SEC Office of Compliance Inspections and Examinations (“OCIE”) issued a Risk Alert to provide information about initial examinations of SEC-registered broker-dealers and investment advisers (“firms”) taking place after the June 30 compliance deadline for the Form CRS. Firms must file their Form CRS client relationship summaries with the SEC and deliver the completed relationship summaries to retail investors between May 1 and June 30, 2020.
After the June 30 compliance deadline, examinations conducted by OCIE will assess whether firms have met compliance with the implementation of Form CRS. There are five primary areas of concern that OCIE will validate regarding Form CRS:
Delivery and Filing
Examination staff may review:
- whether the firm has filed its Form CRS with the SEC and whether the Form CRS is posted on the firm’s website
- the firm’s process for delivering the Form CRS to existing and new retail investors
- whether the policies and procedures address the required delivery processes and dates
Examination staff may review the firm’s Form CRS to determine if the content:
- includes all required information
- contains true and accurate information and does not omit any material facts
Examination staff may review the firm’s Form CRS to evaluate whether it is formatted per the instructions.
Examination Staff may review the firm’s policies and procedures for updating the Form CRS to evaluate:
- how and if the firm updates its Form CRS within 30 days after any information contained in it becomes materially inaccurate
- how and if the firm communicates these changes to retail investors within 60 days
- the firm’s process for emphasizing to retail investors the most recent changes made to the Form CRS
Examination staff may review the firm’s records to determine how the firm complies with delivery and recordkeeping requirements.
As we continue forward in these uncertain times, it is more important than ever to ensure that retail investors understand the services they are receiving and how they will be charged for those services. The implementation of Form CRS will provide firms with a streamlined way to present this information to retail investors. This Risk Alert by the OCIE shows that the SEC examination staff appear to be focused on assessing whether firms have made good faith efforts to put these new policies into place.