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December 14, 2023 at 02:37 PM
The Securities and Exchange Commission recently updated its frequently asked questions guidance for its Customer Relationship Summary form, or Form CRS — including disclosures required by dually licensed professionals, private placements, as well as firms that act as a principal underwriter to a mutual fund or variable annuity.
The answers to the FAQ were prepared on Dec. 8 by the SEC Division of Investment Management and the Division of Trading and Markets. The agency updates the FAQ from time to time as it receives questions.
Private Placements
One brokerage firm queried the agency on filing Form CRS as a BD that services issuers of private placement securities. “In this role, we interact directly with retail investors by, for example, assisting investors with completing subscription agreements, but we do not make any recommendations to retail investors nor do we offer brokerage accounts. Would my firm have to file and deliver Form CRS?” the firm asked.
The SEC’s response: “Generally, yes. Broker-dealers registered with the SEC that offer services to retail investors must file and deliver a Form CRS under Rule 17a-14 …. In the staff’s view, whether a retail investor engages in a securities transaction for a private placement security through a broker-dealer requires a facts and circumstances evaluation of whether the broker-dealer or an associated person of the broker-dealer participates as an intermediary between the issuer and the retail investor in the purchase or subscription process.”
Dually Licensed
Another broker-dealer stated that some of its financial professionals “are dually licensed and offer investment advisory services to retail investors through unaffiliated registered investment advisers.”
The BD asked: “In addition to making recommendations or opening accounts for my brokerage customers, I also offer execution-only services to my financial professionals’ advisory clients. The advisers’ relationship summaries are posted on their public websites. In the staff’s view, am I subject to the Form CRS requirements when providing execution-only services to those advisory clients?”
The SEC’s response: “No. Broker-dealers providing execution-only services to an investment adviser’s advisory clients do not typically establish the kind of relationship with the adviser’s retail clients that Form CRS was designed to address. Accordingly, the staff believes the broker-dealer in this scenario would not be considered to be offering services to a retail investor for purposes of Exchange Act Rule 17a-14, and would not be subject to the Form CRS requirements when acting in such capacity.”
