The Securities and Exchange Commission’s office of compliance inspections and examinations (OCIE) has issued two risk alerts that provide broker-dealers and investment advisers with advance information about the expected scope and content relating to the initial examinations of Regulation Best Interest and Form CRS. The compliance date for Regulation Best Interest and Form CRS is June 30, 2020.
Regulation Best Interest and Form CRS are key components of a broader package of rules adopted by the SEC in June 2019. Regulation BI establishes a “best interest” standard of conduct for brokers when they make a recommendation to a retail customer of any securities transaction or investment strategy involving securities, while Form CRS requires broker-dealers to provide a brief summary to retail investors on the scope of their relationship.
Initial examinations of Regulation Best Interest will focus on assessing whether broker-dealers have made a good faith effort to implement policies and procedures reasonably designed to comply with the rule, including the operational effectiveness of a broker-dealer’s policies and procedures. The risk alert for Regulation Best Interest can be read here.
Initial examinations of Form CRS will focus on assessing whether firms have made a good faith effort to implement Form CRS, including reviewing the filing and posting of a firm’s relationship summary as well as its process for delivering the relationship summary to existing and new retail investors. The risk alert for Form CRS can be read here.
“Regulation Best Interest and Form CRS are critical to the protection of Main Street investors, and we feel it is important to share our plans for initial examinations to help firms assess their preparedness as the June 30, 2020 compliance date nears,” said Pete Driscoll, director of OCIE. “Based on conversations we have had with the industry, we know firms have made substantial progress in implementing these new rules. We understand that this implementation will be an iterative process, and our focus will be on firms continuing good faith and reasonable efforts, including taking into account firm-specific effects from disruptions caused by COVID-19.”
The SEC’s office of compliance inspections and examinations conducts examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, transfer agents, and others.