The SEC released updates to Form CRS in 2020 with additions to their Form CRS FAQ, this time focusing on the Disciplinary History section. After so many updates, it is a good idea to go back through to refresh your memory.

Here are the sections the SEC updated in 2020:

  • Scope of Form CRS Requirements
  • Retail Investor
  • Relationship Summary Format
  • Filing Requirements
  • Delivery Requirements
  • Disciplinary History
  • Plain English; Fair Disclosure
  • Record keeping and Record making

This blog will cover the updates to Disciplinary History, Plain English; Fair Disclosure, and Record keeping and Record making. The other updates were covered in part 1 of this blog, which can be found here.

Disciplinary History (February & October)

In this section, the SEC clarifies the requirements for Item 4 in Form CRS. First, even if your firm answers no to “Do you or your financial professionals have legal or disciplinary history?”, you cannot omit or modify the heading and must answer “yes” or “no”. General Instruction 2.B, which permits the omission or modification of any disclosure or conversation starter that is inapplicable to a firm’s business, does not permit omissions of, or modifications to, the heading or response to Item 4.

The SEC does permit firms to include a separate “yes” or “no” response for the firm (including relevant affiliates) and the firm’s financial professionals. If your firm chooses to do this, it must be a concise response, such as “No for our firm. Yes, for our financial professionals.” or “Firm – no.” “Financial professionals – yes.”.

The Commission has made it clear that any further detail in the response is not allowed. They do allow providing separate copies of additional disclosures if your firm wishes to do so.

They also clarify that if a firm’s parent company has had a reportable legal or disciplinary history, the firm will have to answer yes to “Do you or your financial professionals have legal or disciplinary history?”, even if the firm has nothing to do with it.

Plain English; Fair Disclosure (February)

For firms that communicate with retail investors in a language other than English, the SEC will allow you to deliver a relationship summary in that language if the firm delivers a separate English copy with it and the translated version:

  • Is a complete, fair, and accurate translation of the English relationship summary;
  • Does not make any of the terms used in the relationship summary misleading;
  • Does not count towards the applicable page limit; and
  • Does not translate the term “U.S. Securities and Exchange Commission.”

Record Keeping and Record Making (June)

The update in the last section of the FAQ explains the books and records requirements. The Commission sites Rule 17a-3(a)(24) that states that broker-dealers are required to make a record of the date that each Form CRS was provided to each retail investor, including any Form CRS provided before such retail investor opens an account, even if the prospective customer does not open an account or become a customer.

Firms must maintain all records made pursuant to Rule 17a-3(a)(24), as well as a copy of each Form CRS, until at least six years after such record or Form CRS is created.

If you want to learn more about best practices on how to establish an effective compliance program with controls in place to stay compliant with the updates to Form CRS in 2020 and more, please contact our expert team of compliance professionals.