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Volume XI, Number 215


August 02, 2021

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SEC Joint Statement on Form CRS and New FAQs & Upcoming Roundtable

On October 8, 2020, the U.S. Securities and Exchange Commission (SEC) released a joint statement by SEC Chairman Jay Clayton and the SEC’s directors of the Division of Investment Management and the Division of Trading and Markets “Regarding New FAQs for Form CRS” (CRS FAQ Joint Statement). The CRS FAQ Joint Statement offers guidance to both broker-dealers and registered investment advisers (collectively, firms). The focus of this guidance addressed Form CRS disclosures regarding firm or financial professional disciplinary histories. Along with the CRS FAQ Joint Statement, the SEC modified and released its “Frequently Asked Questions on Form CRS” (Form CRS FAQs).

The CRS FAQ Joint Statement advises that “in connection with its review of Form CRS filings, the staff Standards of Conduct Implementation Committee (Committee) has observed examples of relationship summaries where firms did not provide a response in the disciplinary history section” and “where firms’ responses in the disciplinary history section appear to lack required information or otherwise could be improved.” Therefore, “the staff of the Division of Investment Management and the Division of Trading and Markets (Staff) published frequently asked questions (FAQs) about the disclosure requirements of Form CRS with respect to a firm’s disciplinary and legal history.” Perhaps the CRS FAQ Joint Statement and accompanying Form CRS FAQs also were inspired, in part, by a Wall Street Journal study and article claiming purported disclosure failures in Forms CRS regarding said disciplinary histories.

The CRS FAQ Joint Statement admonished:

Under the Instructions for Form CRS, a firm must include in its relationship summary the heading: “Do you or your financial professionals have legal or disciplinary history?” and answer “yes” or “no” depending upon whether the firm or any of its financial professionals has a triggering event. A firm also must direct the retail investor to visit for a free and simple search tool to research the firm and its financial professionals. Additionally, a firm must include a conversation starter that will allow a retail investor to assess his or her financial professional’s disciplinary history and engage in further discussion about those events or any events applicable to the firm.

This statement then offered this guidance:

  • Firms must report disciplinary history in its Form CRS relationship summary regardless of whether history already must be disclosed on other forms.

  • Firms do not have discretion to leave the answer blank or to omit reportable disciplinary history from their relationship summaries.

  • Firms should review their reportable disciplinary history and that of their financial professionals to ensure that their relationship summaries are accurate, complete and consistent with those other forms.

  • When responding to the disciplinary history heading in their relationship summaries, firms may not add descriptive or other qualitative or quantitative language. Adding such language might, intentionally or unintentionally, obfuscate or otherwise minimize the disciplinary history.

The Form CRS FAQs explain that the required heading, which applies to the firm, its relevant affiliates and its financial professionals, requires a “yes” or “no” response. Additionally, the Form CRS FAQs state that the Form CRS does not preclude firms or their financial professionals from separately providing copies of additional regulatory disclosures directly to a retail investor.

The CRS FAQ Joint Statement closes with “We remain committed to providing feedback and assistance so that firms can produce relationship summaries that meet the Commission’s goals of reducing retail investor confusion in the marketplace for brokerage and investment advisory services and otherwise enhancing the quality and transparency of retail investors’ relationships with their financial professionals.” It then references the upcoming Roundtable on Regulation Best Interest and Form CRS on October 26, 2020. We briefly summarize that SEC release below.

On September 28, 2020, the SEC announced “SEC Staff to Host October 26 Roundtable on Regulation Best Interest and Form CRS.” At this upcoming virtual Roundtable, SEC Staff and Staff from the Financial Industry Regulatory Authority (FINRA) will discuss initial observations on Regulation Best Interest and Form CRS implementation. The SEC Staff will include members from its Office of Compliance Inspections and Examinations, the Division of Trading and Markets, and the Division of Investment Management. Scheduled to take place from 1:00 p.m. to 3:00 p.m. ET, the Roundtable it will be archived for later viewing. Archiving aside, we recommend that our readers mark their calendars and view the webcast live.

© 2021 Faegre Drinker Biddle & Reath LLP. All Rights Reserved.National Law Review, Volume X, Number 287

About this Author

James G. Lundy, Drinker Biddle, regulatory investigations lawyer, financial services compliance attorney

James G. Lundy represents clients in Securities and Exchange Commission (SEC), Commodities Futures Trading Commission (CFTC), self-regulatory organization, and other financial regulatory agency investigations and examinations, and compliance and governance counseling, white collar criminal investigations, and complex business litigation.

With 12 years of senior SEC experience and more than two years of in-house experience at a futures and securities brokerage firm, Jim has developed an in-depth working knowledge of the various...

Sandra Dawn Grannum, Finance, Securities Lawyer, Drinker Biddle Law Firm

Sandra Dawn Grannum concentrates her practice on securities, broker/dealer arbitration, litigation, mediation and regulatory defense.

Sandy has tried complex multimillion-dollar arbitrations before FINRA, AAA and JAMS across the country. She has tried more than 50 arbitrations before the NASD and FINRA through award represented brokerage firms, banks, clearing firms, and associated persons. In addition, she has successfully pursued cases in state and federal courts and in adversarial proceedings before bankruptcy courts.

David W. Porteous Corporate Attorney Faegre Drinker Biddle & Reath Chicago, IL

David Porteous routinely counsels clients in the investment management, broker-dealer and financial services industries on regulatory matters including examinations, investigations and enforcement proceedings as well as complex civil and securities-related litigation. In addition, he assists clients in developing and implementing compliance and regulatory risk management plans and represents clients in complex civil and securities litigation.

Regulatory Agency Background

Before entering private practice, David was a staff attorney in the Securities & Exchange Commission...

Fred Reis Faegre Drinker Biddle Law Firm, Los Angeles, Labor and Employment Law Attorney

Fred Reish represents clients in fiduciary issues, prohibited transactions, tax-qualification and Department of Labor, Securities and Exchange Commission and FINRA examinations of retirement plans and IRA issues.

Fred works with both private and public sector entities and their plans and fiduciaries and represents plans, employers and fiduciaries before federal agencies such as the DOL and IRS. He consults with banks, trust companies, insurance companies and mutual fund management companies on 401(k) recordkeeping services, investment products and...

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Bruce Ashton, Drinker Biddle Law Firm Los Angeles, Employment Benefits Attorney

Bruce L. Ashton has more than 35 years of experience handling employee benefits matters. His practice concentrates on representing plan service providers (including RIAs, independent record-keepers, third-party administrators, broker-dealers and insurance companies) in fulfilling their obligations under ERISA. His experience includes representing public and private sector plans and their sponsors, negotiating the resolution of plan qualification issues under IRS remedial correction programs, advising and defending fiduciaries on their obligations and...