Compliance with Form CRS Requirements: OCIE Announces Examination Priorities

On June 5, 2019, the Securities and Exchange Commission (SEC) adopted Form CRS under both the Securities Exchange Act of 1934 and the Investment Advisers Act of 1940, with a compliance deadline of June 30, 2020.

Compliance with Form CRS Requirements: OCIE Announces Examination Priorities

As that deadline looms, the Office of Compliance Inspections and Examinations (OCIE) has now issued a Risk Alert for all SEC-registered broker-dealers and investment advisers (firms) that makes clear the focus of upcoming examinations intended to assess the good-faith efforts of firms to comply with the requirements of Form CRS.

The full Risk Alert is available here.

 

Form CRS—A Review of the Basics

Under these provisions, advisers must provide retail clients with a Form CRS, which briefly summarizes a number of important points about their firm, including:

  • Adviser’s services to be provided
  • Fees and costs that will be charged
  • Disciplinary history
  • Conflicts of interest

The SEC has issued written instructions that provide detailed specifics of what information must be provided to retail clients in Form CRS and how that information must be presented.

Read more about the SEC’s requirements for the relationship summary here.

 

Form CRS Examination Focus

In an effort to assist firms in assessing their own preparedness to comply with regulations pertaining to Form CRS ahead of the commencement of examinations, OCIE has outlined the following anticipated areas of concern:

  • Delivery and Filing—Examiners will likely seek to confirm that a firm has filed its relationship summary with the commission and posted it for public viewing on its website, in addition to confirming that the firm’s methods for delivering the summary to its clients are in compliance with regulations.
  • Content—Examiners will seek to determine if the content meets regulatory standards and is true and accurate with no pertinent details omitted.
  • Formatting—A firm’s relationship summary may be reviewed to determine whether it includes mandated wording and text features, and is written in plain English.
  • Updates—Examiners may attempt to determine whether a firm:
    • Updates and files its relationship summary within 30 days after any information becomes materially inaccurate
    • Communicates these changes to retail investors within 60 days after the required updates are made
    • Informs investors of the updates in an effective manner
  • Recordkeeping—Examiners are likely to assess how the firm complies with applicable delivery and recordkeeping obligations.

Read More: SEC Publishes Frequently Asked Questions on Form CRS

 

Form CRS Compliance in Light of COVID-19 Pandemic

We are living and conducting business in unprecedented times, and the unusual circumstances related to the COVID-19 pandemic lead us to caution firms to pay particular attention to the following:

Communicate in the Event of Difficulty

Firms will be expected to meet the June 30th deadline regardless of the current situation. However, should your firm be severely affected by unforeseen circumstances, such as critical employee illness that results in business continuity issues, it is imperative that firms correspond with their regional OCIE office. Clear and timely communication can establish cooperation rather than confrontation with the enforcement bodies.

Focus on Cybersecurity

Restrictions on staff in the office have led to a drastic rise in the number of people working remotely, which focuses concerns on the security of mobile and home networks being utilized for business. A firm’s IT security staff should be sure the necessary firewalls and other security measures are in place to handle an increase in scams, phishing attempts, and other cybercriminal activity.

Our legal and compliance experts are standing by to help you get your firm’s Form CRS filed successfully—click here or contact us at (619) 278-0020 to schedule a consultation.