August 1, 2021

Form CRS Violations

CRS, SEC, SEC Enforcement, Regulatory fines, Broker dealers, investment advisers

27 Financial Firms Charged by SEC for Form CRS Filing and Delivery Failures

When the SEC adopted Form CRS on June 5, 2019, it required that registered investment advisers give their retail investor clients and have posted prominently on their websites the Form CRS.   Nearly two years later, on July 26, 2021, 21 investment advisers and 6 broker-dealers failed to file and deliver their relationship summaries on time, after several SEC warnings.

Here is a breakdown of the charges (number of firms, 27 total):

• $10,000 (7)

• $25,000 (14)

• $50,000 (2)

• $97,523 (4)

“Registration with the SEC as an investment adviser or broker-dealer comes with mandated filing and disclosure obligations,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division.  “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.”

Reflecting on the charges and settlements, it is imperative that your firm confirm that they are in compliance with any Form CRS obligations, and consider the following:

Determine whether there are any Form CRS obligations. Please note that for the purposes of Form CRS, a retail investor client is “a natural person … who seeks to receive or receives [advisory] services primarily for personal, family or household purposes.” Although this definition generally does not include a natural person who invests in a private fund, firms must carefully review of any managed account relationships or “funds of one” to ensure that they do not meet the definition of a “retail investor client”.

You should also take the time to review the contents of any existing Form CRS relationship summaries.  Although these Form CRS settlements were a result of failures to file the Form CRS, firms should proactively prepare for substantive reviews of their Form CRS, in advance of any examination.   Finally, review the Form CRS for consistency of disclosure across other parts of the Form ADV, fund offering documents, due diligence questionnaires, any marketing materials, and confirmation that the Form CRS is prominently posted on the firm’s website.

For more information, here is a link to the Full SEC Press Release.

How Coast to Cast Compliance Can Help.

If you would like assistance with your Form CRS, have any questions, or want to discuss how Coast to Coast Compliance can serve as an on-demand compliance resource for your firm and its compliance staff, please contact us.