Business audit. Magnifying glass on financial documents.

If you can believe it, May 1, 2020 is almost upon us.  And if you don’t remember from our February post, that is the day when advisory firms serving retail investors may start filing client relationship summaries on Form CRS.  As a reminder, Form CRS gives clients a quick summary of the key things they need to know about working with your firm, as it discusses types of services offered, fees charged, conflicts of interest, and disciplinary history.  While it cannot exceed two pages, Form CRS still manages to cover many of the same topics that are discussed in detail in Form ADV Parts 1 and 2.

On April 7, 2020, the SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a risk alert announcing that regulatory exams occurring after the compliance date for Form CRS (June 30, 2020) will assess how well firms have implemented policies and procedures to ensure compliance with the new requirements. In that alert, OCIE confirmed that examinations of advisers occurring after the compliance date will:

  • assess whether firms have filed, delivered and posted Form CRS as required;
  • determine whether the content and format requirements of Form CRS have been met; and
  • evaluate whether Form CRS recordkeeping processes have been implemented.

Importantly, in the risk alert, OCIE discussed with some particularity how the staff anticipated assessing compliance with Form CRS.  OCIE noted specific questions the staff may ask, what documents may be requested, and what disclosures the staff might expect to see.  For example, the staff may review records of the dates that Form CRS was delivered, advisory contracts to confirm consistency with disclosed fees, or copies of the adviser’s recordkeeping policies and procedures.  Firms tasked with compliance with Form CRS should review the guidance provided in the risk alert and evaluate whether any updates to their compliance program should be made.

We will continue to follow guidance released by the staff on Form CRS and keep you informed.  And please be sure to check back next time, when Josh will discuss a challenge you’re probably facing right now – ensuring that your business continuity plan is effective or gets the upgrades it needs so that you can continue to operate in this time of adversity.  Until then, we hope you are staying safe and healthy.