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Statement by the Staff Standards of Conduct Implementation Committee Regarding New Form CRS Disclosures

Read the U.S. Securities and Exchange Commission July 27, 2020 public statement, "Statement by the Staff Standards of Conduct Implementation Committee Regarding New Form CRS Disclosures" here:

[1]Form CRS, which was adopted by the Securities and Exchange Commission (the “Commission”) in June 2019, is a brief relationship summary designed to help retail investors make informed choices regarding whether a brokerage or investment advisory relationship,[2] as well as whether a particular broker-dealer or investment adviser (each, a “firm”), best suits his or her particular needs and circumstances. In this way, the relationship summary was designed to reduce investor confusion in the marketplace for brokerage and investment advisory services and otherwise assist investors when they work with financial professionals. The relationship summary promotes transparency and better-informed decision making, through clear, concise disclosures, and by summarizing in one place selected information about a particular firm.[3] Both broker-dealers and investment advisers must provide to retail investors a relationship summary containing plain English disclosures on the same topics under standardized headings in a prescribed order, allowing retail investors to more easily compare different firms’ services, fees, and other important information.[4]

As of June 30th, firms began to deliver their relationship summaries to new and prospective retail clients and customers, as well as to existing retail clients and customers. Firms must also file their relationship summaries with the Commission and post the current relationship summary on the firm’s public website, if the firm has one.     

The staff Standards of Conduct Implementation Committee (the “Committee”) is reviewing relationship summaries from a cross-section of firms to assess compliance with the content and format requirements of Form CRS.[5] The relationship summaries reviewed to date generally reflect effort by firms to meet the content and format requirements of Form CRS, and the Committee’s initial reviews have identified good examples of simple, clear disclosures. At the same time, the Committee’s initial reviews have identified examples that may lack certain disclosures or could be clearer or otherwise improved. The Committee will engage with firms to share best practices and provide feedback on the filings. Particular firms may need to consider ways to improve their relationship summaries and determine whether any specific amendments, or broader change in their overall approach, would be appropriate. To provide an additional opportunity to share best practices and general feedback, the Committee plans to host a roundtable this fall where Commission staff will be able to share additional thoughts following the Committee’s review of firms’ initial relationship summaries. The roundtable date, agenda items, and logistical information will be made public as they are finalized.

As firms continue to review and refine their relationship summaries, we encourage them to again familiarize themselves with the specific requirements of Form CRS by reviewing the Instructions to Form CRS, the Form CRS Adopting Release, the Frequently Asked Questions on Form CRS, and the Small Entity Compliance Guide.[6] Firms can also review the Office of Compliance Inspections and Examinations risk alert published in April, which shared the planned scope and content of its initial examinations, which began this month, assessing whether firms have made a good faith effort to implement Form CRS.[7]  As a reminder, questions regarding Form CRS may be directed to: IABDQuestions@sec.gov. These resources are just a few of the ways in which the Commission and Commission staff have engaged, and continue to engage, extensively with firms, retail investors, and other market participants, as well as FINRA and other regulatory partners, regarding the implementation of Form CRS to improve the quality and transparency of firms’ relationships with their retail investors.[8] The staff remains committed to continuing this engagement.

 

[1] This statement represents the views of Commission Staff. It is not a rule, regulation, or statement of the Securities and Exchange Commission (“Commission”). The Commission has neither approved nor disapproved its content. This statement, like all staff statements, has no legal force or effect: it does not alter or amend applicable law, and it creates no new or additional obligations for any person.

[2] For purposes of Form CRS, a “retail investor” is defined as “a natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.” Exchange Act Rule 17a-14(e)(2); Advisers Act Rule 204-5(d)(2).

[3] See Form CRS Relationship Summary; Amendments to Form ADV, Exchange Act Release No. 86032, Advisers Act Release No. 5247 (June 5, 2019) (“Form CRS Adopting Release”), available here.

[4] See Exchange Act Rule 17a-14; Advisers Act Rule 204-5.

[5] The inter-Divisional Standards of Conduct Implementation Committee was established when Form CRS was adopted, and includes representatives from the Division of Investment Management, Division of Trading and Markets, Division of Economic and Risk Analysis, and Office of Compliance Inspections and Examinations. See SEC Adopts Rules and Interpretations to Enhance Protections and Preserve Choice for Retail Investors in Their Relationships With Financial Professionals (Jun. 5, 2019), available here.

[6] The Form CRS Adopting Release is available here; the Small Entity Compliance Guide is available here; and the Frequently Asked Questions on Form CRS are available here.

[7] See Office of Compliance Inspections and Examinations, “Risk Alert – Examinations that Focus on Compliance with Form CRS” (Apr. 7, 2020), available here.

[8] Among these resources is a Spotlight Page for relevant materials, including releases, comment letters, speeches, press releases and transcripts, available hereSee also SEC Chairman Jay Clayton, “Confirmation of June 30 Compliance Date for Regulation Best Interest and Form CRS” (Jun. 15, 2020), available at https://www.sec.gov/news/public-statement/clayton-compliance-date-regulation-best-interest-form-crs; SEC Chairman Jay Clayton, “Investors Remain Front of Mind at the SEC: Approach to Allocation of Resources, Oversight and Rulemaking; Implementation of Regulation Best Interest and Form CRS” (Apr. 2, 2020), available at https://www.sec.gov/news/public-statement/statement-clayton-investors-rbi-form-crs.


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