August 17, 2022

Volume XII, Number 229

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SEC Staff Statement Highlights Need for Form CRS Disclosure Improvements

On December 17, 2021, the SEC’s Standards of Conduct Implementation Committee issued a statement summarizing its observations following a review of Form CRS relationship summaries filed with the SEC by a cross-section of broker-dealers and investment advisers and the firms’ compliance with Form CRS requirements. 

The Committee’s observations identified various problematic disclosures and/or disclosure practices, including the following:

  • Use of Technical Language and/or Inclusion of Disclaimers or Other Impermissible Disclosures. Some firms used legal jargon and/or highly technical business terms without providing clear explanations. The staff also observed some relationship summaries that included impermissible disclaimers and hedging language.

  • Omission or Modification of Required Information. Certain firms omitted or modified required disclosures, such as headers, prescribed language or conversation starters—in certain instances in apparent reliance on the proposed instructions to Form CRS rather than the adopted final instructions.

  • Shortcomings in Descriptions of Relationships and Services; Fees, Costs, Conflicts and Standards of Conduct. Some relationship summaries failed to adequately describe substantive topics required to be addressed by the form, including monitoring retail investors’ investments, the scope of a firm’s investment authority, limitations on investment offerings, principal fees and costs, wrap fee program offerings and fees, firm and financial professional compensation arrangements and conflicts of interest.

  • Modification and/or Supplementation of the Disciplinary History Disclosure. In some relationship summaries, firms omitted or modified the heading or the conversation starters and/or provided extraneous language explaining their response (beyond the permissible yes or no response) to the required disciplinary history disclosure.

  • Issues with Prominently Displaying Relationship Summaries on Firm Websites. In some instances, the staff was unable to locate a relationship summary on a firm’s website or was able to locate the relationship summary only after an extensive search of the firm’s website.

  • Use of Marketing Language and/or Vague and Imprecise Boilerplate Explanations. The staff reviewed some relationship summaries that included marketing language, touted firms’ abilities, or used superlatives or similar descriptors. In addition, the staff observed disclosures in some relationship summaries that did not appear to be tailored to the particular firm’s services, fees, relationships or conflicts.

The SEC staff encourages firms to familiarize themselves with the specific requirements of Form CRS by reviewing the Form CRS adopting release, the Small Entity Compliance Guide (as applicable) and the staff’s Frequently Asked Questions on Form CRS. Additionally, firms can submit interpretive questions to [email protected].

The Committee’s statement is available here.

© 2022 Vedder PriceNational Law Review, Volume XII, Number 42
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About this Author

John Marten Investment Attorney Vedder Price Law FIrm
Shareholder

John S. Marten, a Shareholder in the Chicago office of Vedder Price, has substantial experience representing clients in the investment management industry.

As a member of the firm’s Investment Services group, Mr. Marten counsels clients on a wide variety of matters involving the application of the federal securities laws to investment companies, investment advisers and broker-dealers. He has significant experience counseling investment company clients with respect to new products and was recently involved in the creation of two mutual funds...

(312) 609 7753
Nathaniel Segal Investment Attorney Vedder Price Law Firm
Counsel

Nathaniel Segal is counsel at Vedder Price and a member of the Investment Services group. He focuses his practice on investment companies and investment advisers in connection with the organization and operation of investment products and services, including traditional mutual funds, closed-end investment companies (including interval funds and listed closed-end funds), variable insurance products and registered hedge funds, as well as mutual funds utilizing complex hedging and absolute return strategies. Mr. Segal has experience in conducting transactional due diligence...

(312) 609 7747
Jacob Tiedt,Vedder Price law firm investment services attorney
Shareholder

Jacob C. Tiedt is a Shareholder at Vedder Price and a member of the Investment Services group.

Mr. Tiedt’s practice includes the representation of registered mutual funds, closed-end funds and exchange-traded funds; private funds; investment advisers; and other financial institutions on a broad range of regulatory, governance and compliance matters. Mr. Tiedt regularly counsels clients on matters relating to SEC registration, disclosure and compliance; shareholder solicitation; NYSE, Nasdaq and FINRA regulation; corporate governance; and board administration. Mr....

312-609-7697
Christina V. West Associate Chicago Vedder Price
Asscoiate

Christina V. West is an Associate in Vedder Price’s Chicago office and a member of the firm’s Investment Services group.

Ms. West focuses her practice on representing U.S.-registered investment companies and funds, their boards of directors and investment advisers in regulatory compliance and governance matters under U.S. securities laws. Ms. West received her law degree from the University of Notre Dame Law School and received her undergraduate degree from The University of North Carolina at Chapel Hill. While in law school she served as an...

312-609-7567
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