The Securities and Exchange Commission on Monday ordered 27 financial firms to pay a total of $910,092 in penalties in the first enforcement actions for compliance failures related to the client disclosure document known as Form CRS.
The customer relationship summary outlines a firm’s fees, services and potential conflicts of interest and is supposed to help clients and customers decide whether to do business with a firm.
The document was created as part of the regulatory package whose centerpiece was Regulation Best Interest, the broker investment advice standard that went into force June 30, 2020.
Both investment advisory firms and brokerages had to file Form CRS with the SEC and prospective or new retail clients by that date. They had to file the document with existing clients by July 30, 2020, and also post it on their websites.
In its orders, the SEC found that 21 investment advisers and six broker-dealers failed to meet their Form CRS deadlines. They did not deliver or post the documents until they were reminded twice by their respective regulators, the SEC for advisers and the Financial Industry Regulatory Authority Inc. for brokers.
The SEC levied fines on the 27 firms that ranged from $10,000 to $97,523 each. None of the firms admitted nor denied the SEC’s findings.
The case was announced on the first day in office for new SEC enforcement director Gurbir S. Grewal.
“Registration with the SEC as an investment adviser or broker-dealer comes with mandated filing and disclosure obligations,” Grewal said in a statement. “Today’s cases reinforce the importance of meeting those obligations and providing retail investors with information that is intended to help them understand their relationships with their securities industry professionals.”
Form CRS is meant to work in tandem with Reg BI.
“Form CRS is intended to provide retail investors with a brief summary about the services a firm offers, its fees, conflicts of interest and other information that can help investors make more informed choices,” Adam S. Aderton, co-chief of the SEC Enforcement Division’s Asset Management Unit, said in a statement. “By failing to file, deliver, and post this form, these firms deprived their clients and customers of the benefits of that information.”
The SEC has been finding compliance shortcomings related to Form CRS. Last October, the agency warned firms not to omit disciplinary history from the document. Last July, the agency said it was finding Form CRS form and content problems.
The SEC maintained the June 30, 2020, implementation deadline for Reg BI and Form CRS despite the ongoing pandemic. Initially, it said it was looking for “good faith” compliance efforts from brokers and advisers. But since the beginning of this year, it has gotten tougher in its reviews.
Monday’s enforcement cases were the first related to Form CRS. The SEC has not yet announced an enforcement action related to Reg BI.
Grewal joined the SEC after serving as attorney general in New Jersey, where he championed the state’s fiduciary rule, which was promulgated as an alternative to Reg BI. The New Jersey rule has not been finalized.
Plus, a $400 million Commonwealth team departs to launch an independent family-run RIA in the East Bay area.
The collaboration will focus initially on strategies within collective investment trusts in DC plans, with plans to expand to other retirement-focused private investment solutions.
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