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SEC OCIE Highlights Scope and Content of Reg. BI and Form CRS Examinations

Steven.Lofchie@cwt.com's picture
Commentary by Steven Lofchie

The SEC Office of Compliance Inspections and Examinations ("OCIE") described the scope and content of initial examinations for Regulation Best Interest ("Reg. BI") and Form CRS (see here and here). The compliance date for Reg. BI and Form CRS is June 30, 2020.

According to the OCIE, its initial examinations will assess a firm's Reg. BI-related policies and procedures by reviewing compliance with the:

  • disclosure obligation, such as providing disclosures of material facts regarding (i) the scope and terms of a broker-dealer's retail customer relationship and (ii) conflicts of interest with respect to recommendations;

  • care obligation, including (i) the extent of information collected in order to build a retail customer's investment profile, (ii) processes used to determine which recommendations are in the best interest of a retail customer and (iii) the advice provided by a broker-dealer on significant investment decisions or more "complex, risky or expensive" products;

  • conflict of interest obligation, such as policies and procedures that (i) implement a system for detecting conflicts, (ii) provide the disclosure of conflicts and (iii) mitigate or eliminate conflicts; and

  • compliance obligation, such as (i) processes for remediating problems and (ii) the use of periodic review and testing procedures.

Separately, the OCIE highlighted several aspects of initial examinations relating to Form CRS, including:

  • delivery and filing, by (i) reviewing whether a firm has submitted its relationship summary to the SEC, (ii) examining the process for delivering the relationship summary to retail investors and (iii) determining whether firm procedures address the required relationship summary delivery processes and dates;

  • the content of a firm's relationship summary, to ensure that it includes (i) all required information and (ii) true and accurate information;

  • the formatting of the relationship summary, to determine whether it is in compliance with Form CRS instructions;

  • policies and procedures implemented to keep a relationship summary updated; and

  • recordkeeping relating to the delivery of a relationship summary.

The OCIE noted that it will take into account the disruptive effects of COVID-19.

Consistent with the OCIE-issued risk alerts, FINRA stated that it would take the same approach when conducting initial examinations for Reg. BI and Form CRS compliance, and work with firms regarding COVID-19-related challenges.

Commentary

This is a well-done and helpful outline of what firms must focus on in order to comply with the SEC's new customer protection obligations.  

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