What You Need to Know
- Reg BI and Form CRS rely heavily on disclosures.
- SEC has never performed investor testing on the effectiveness of these disclosures, Crenshaw said.
- SEC hasn’t done any testing of Form CRS forms to see whether they are working as intended, according to Crenshaw.
The Securities and Exchange Commission needs to conduct investor testing on Regulation Best Interest as well as its Customer Relationship Summary, or Form CRS, to ensure the disclosure-based rules are working, SEC Commissioner Caroline Crenshaw said Friday.
Speaking at the agency’s 8th Annual Conference on Financial Market Regulation, Crenshaw, a Democrat, said that the SEC’s advice standards package finalized in June 2019 — which included Reg BI and Form CRS — “relies heavily, though not exclusively, on disclosure.”
Reg BI, Crenshaw said, requires broker-dealers to “make disclosures about the nature of the relationship between the broker-dealer and the customer; the fees and costs the customer will incur; the type and scope of the services to be provided; and conflicts of interest.”
However, she noted, “the SEC has never performed investor testing on the effectiveness of these disclosures. The materials provided to investors are often lengthy and technical, using industry terms that may be unfamiliar to retail investors.”
Crenshaw maintained that whether disclosure “truly enables informed decision-making is a crucial question in terms of the effectiveness of our regulatory approach,” adding that the agency needs to “engage in investor testing of the actual forms and disclosures that investors receive in order to determine whether or not they are effective.”
This, in turn, will allow the securities regulator “to improve the disclosures and make them more useful for, again, all investors,” she said.