Form CRS
Initial examinations to assess compliance with Form CRS also will begin after June 30, 2020. In a separate risk alert, OCIE identifies several areas firms should be prepared to address in the initial examinations:
• Delivery and Filing: The staff may review the firm’s filing of its relationship summary. The staff also may evaluate the process for delivering the summary to both existing and new retail customers and review policies and procedures for delivering the relationship summary. The firm should be prepared to review records showing the dates retail customers received the relationship summary from the firm. Existing retail customers must receive the relationship summary by July 30, 2020 and before opening new accounts, recommending a rollover, or recommending new products or services not held in an existing account. New retail customers should receive the summary at the initiation of the investment relationship, before making an investment recommendation, placing an order, or opening a brokerage account.
• Content: Examination staff may assess whether the relationship summary includes all required information and whether the information that it contains is true and accurate and is not misleading. The staff will review the firm’s description of the relationships and services it offers to retail customers, costs and fees, compensation, conflicts of interest, and disciplinary or legal history.
• Formatting: The staff plans to review the format of the summary to determine if it complies with the instructions, including whether it is written in plain English and includes certain required wording.
• Updates: OCIE may evaluate firm policies and procedures for updating the relationship summary, including how and whether the firm updates and files the summary within thirty days after information becomes materially inaccurate, how and whether the firm communicates changes to retail customers within sixty days after the updates must be made, and the firm’s process for highlighting changes for retail customers.
• Recordkeeping: A review of the firm’s records documenting delivery of the relationship summary and policies and procedures for related recordkeeping also may occur during the examination.
Guidance
The recent examination alerts are the next step in the chain from regulatory initiative, to guidance and compliance assessments, to enforcement actions. To reduce the risk of SEC enforcement action, broker-dealers and dual registrants should consider taking the following steps:
• Methodically catalogue all forms of compensation and potential conflicts of interest. For example, identify revenue streams and material agreements with third parties, as well as all expenses charged to customers. The examination staff will do the same when it conducts the examination.
• Use available data to identify high-risk accounts—accounts for elderly customers or holding certain types of high-risk products.
• Good disclosure will avoid concerns about compensation arrangements and potential conflicts. Pay particular attention to representative incentives and material limitations on product offerings.