In the wake of an investigation by the Wall Street Journal showing that 20% of firms incorrectly stated having no disciplinary history in their Form CRS, the SEC updated its Form CRS FAQ on October 8 to clarify this particular reporting requirement.
The FAQs illuminate questions 11 and 4 with the following:
- A firm must report any disciplinary action required by form ADV, i.e. including those pertaining to its “advisory affiliates”
- A firm must answer “No” to item, 4.C even if neither the firm nor any of its financial professionals are required to disclose any of the information listed in Item 4.B, i.e. firms cannot skip this section
- In question 4.B, firms may specify that “Yes” a financial professional has legal/disciplinary history, and “No” the firm does not, i.e. the firm cannot withhold a financial professional’s legal/disciplinary history even though the firm is without such history
- A firm may not elaborate beyond “Yes” or “No” in question 4.B
- Already a complicated endeavor as an untested procedure without enforcement history to model best practices upon, Form CRS could not have launched at a more chaotic time for advisers. Although Form CRS only went into effect June of this year, it became subject to SEC examination in July (see April 7 SEC Risk Alert: Examinations that Focus on Compliance with Form CRS).
The SEC’s unwillingness to extend the June 30 deadline and the newly released FAQs indicates the SEC’s eagerness to promote this particular investor protection mechanism despite the hurdles presented by COVID-19. The April Risk Alert stated that the initial Form CRS exams would evaluate whether firms made a “good faith” effort to implement the form; it remains to be seen whether certain information disclosed/not disclosed in the form could trigger a broader exam.
Key Bridge Compliance, LLC will also provide an update on Form CRS compliance following the SEC Roundtable on Regulation Best Interest and Form CRS on October 26.
Outsourced compliance support can help firms ensure that Form CRS is filed on time, contains all required information, and does not contain any material misstatements or omissions. KBC is ready to help your firm navigate the technical and project management challenges of this new compliance element, equipped with multidimensional Form CRS experience built upon partnerships with diverse clients.