Blog FinReg + Policy Watch February 22, 2022

SEC Penalizes 12 Additional BDs and IAs with CRS Failures

On February 15, 2022, the SEC announced settlements with 12 broker-dealers and investment advisers for failing to satisfy their Form CRS obligations.  These settlements come on the heels of 27 settlements last year for similar violations.  While all settlements included both a failure to timely file and deliver relationship summaries, in some cases the SEC also alleged that the firms failed to include information necessary to satisfy their obligations.  This is consistent with prior indications that the SEC would move beyond assessing whether firms have made a good faith effort to implement Form CRS requirements and begin looking more closely at the content and quality of firms’ disclosures.

Similar to the prior round of settlements, fines ranged from $10,000 to $97,523.  Given the specificity of some fine amounts and consistency with prior penalties, it appears that the SEC is continuing to use a sliding scale and allotting higher fines to firms with larger client bases or higher AUM.

While the settlements are light on details, in certain cases the SEC alleged failures “to include certain language and information specified in the Instructions to Form CRS and required by Rule 17a-14.”  This seems to indicate that the SEC considered disclosures to be adequate for the settlements that did not include that violation.  Interestingly, the settlements that included an additional allegation of failure to include necessary information did not appear to result in a higher fine.

The SEC is beginning to look more closely at the content and adequacy of relationship summary disclosures.  We expect this to continue and that the SEC will review disclosures for substance, going beyond mere compliance with Form CRS instructions.  On that note, FINRA identified relationship summary deficiencies as an area of upcoming focus in its 2022 Examination and Risk Monitoring Report, including inadequate filings, failure to post relationship summaries on firms’ websites, failure to timely file and communicate amendments, and incorrectly determining that filings were not needed based upon a firm’s customer base.  Firms should review their relationship summaries to ensure that they are complete, accurate, and current in light of any business changes since the requirements kicked in on June 30, 2020.

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