Broker dealers, specifically the Chief Compliance Officer (“CCO”), are required to review their firm’s compliance programs and procedures at least annually to ensure that all compliance areas are working in accordance with the rules and regulations set forth by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”).
Per the Securities Exchange Act of 1934 under rule 17a-14, one area of review for broker dealers who maintain retail clients is Form CRS, the customer relationship summary. Form CRS contains various information regarding the broker dealer that is important for retail clients to know. Over the past few years, the Securities and Exchange Commission has noted some consistent issues with how the Form CRS has been presented, and broker dealers should take note because upon examination, these issues could lead to further disciplinary actions.
A few areas of focus include the following:
- Plain English: Brokers dealers need to use simple English when completing their firm’s Form CRS. Should a broker dealer use legal terminology along with words that require a dictionary to determine their meaning, the client could become confused, and the regulators may think that the broker dealer is trying to hide some information by using difficult language.
- Website Inclusion: Broker dealers must include a link on the firm’s website that includes the most current Form CRS. This link must be active, and it must lead the client to the correct location of the aforementioned Form CRS.
- Updating Form CRS: Broker dealers need to determine in their processes when it is appropriate to update the Form CRS. The processes need to include what trigger points give rise to the updating of the Form CRS. Trigger points include but are not limited to changes in fees, compensation structure, and offerings. The Chief Compliance Officer along with the compliance team (if applicable) is responsible for ensuring that upon the trigger points being hit, that the amendments to the Form CRS are completed and distributed to clients, that the website is updated, and any others are sent updated copies as needed.
In conclusion, if your broker dealer would like some consultation regarding Form CRS or any other compliance standards, please contact Securities Compliance Management here to schedule a meeting with one of our compliance professionals. Our firm can assist your broker dealer in getting its compliance programs and procedures in proper order to help ensure your broker dealer is in compliance with the necessary regulatory authorities.