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October 26, 2020 at 02:27 PM
SEC Chairman Jay Clayton. (Photo: New York Law Journal)
As the enforcement date for the Securities and Exchange Commission’s Regulation Best Interest and Form CRS reaches its four-month anniversary, firms are “meeting their obligations,” SEC Chairman Jay Clayton said Monday during his opening remarks at the SEC’s Reg BI and Form CRS roundtable.
Reg BI and Form CRS “together with related interpretations adopted at the same time by the commission are designed to bring the legal requirements and mandated disclosure for firms serving retail investors in line with reasonable investor expectations,” Clayton said.
“Collectively, they are also designed to preserve retail investor access in terms of both choice and cost through a variety of investment services and products, fostering healthy and transparent competition,” he explained.
The SEC review has progressed on two fronts: First, staff from the Office of Compliance Inspections and Examinations has been conducting initial exams after the June 30 compliance date, Clayton said.
“Initial exams of Reg BI and Forms CRS have focused on assessing whether firms have made good-faith efforts to implement the requirements of both Reg BI and Form CRS,” he explained.
Second, the SEC Division of Trading and Markets and Investment Management Division’s Standard of Conduct Implementation Review Committee have been reviewing filings of Form CRS.
They have reviewed relationship summaries from a cross-section of firms to assess compliance with the content and format requirements of Form CRS, according to Clayton.
The staff members’ review so far has “generally found that firms have made efforts, and good efforts, to meet the content and format requirements of Form CRS. We have seen good examples of simple and clear disclosures. At the same time, it is clear that there are areas where compliance improvements are needed,” he said.
For example, “staff have identified filings that may lack certain disclosures or could be clearer or otherwise improved,” the SEC chief noted.
One point to be discussed at the roundtable, Clayton said, includes firms’ disciplinary history: “It is now clear to me that historically, before Form CRS, this information was not being brought to the attention of retail investors as it should have been.”
As for Reg BI, Clayton stated that the rule “establishes an enhanced standard of conduct that requires broker-dealers to act in the best interest of their retail clients, making it clear that they cannot place their own interest ahead of their retail customers’ interest.”
Reg BI, he continued, “applies when a broker-dealer recommends a securities transaction or investment strategy involving securities, including an account recommendation such as a retirement fund rollover,” and is a “substantial enhancement beyond broker-dealers’ traditional suitability obligations.”
