Each week we’re giving you our weekly report highlighting the top compliance news articles from various industry news publications. We have selected the most relevant and important news articles related to registered investment adviser ("RIA") compliance and regulatory issues. This week's recap focuses on warnings from the Securities and Exchange Commission ("SEC") regarding Form CRS shortcomings, the SEC's newly created Event and Emerging Risks Examination Team ("EERT"), and a roundtable for Form CRS issues.
Here's our top investment adviser compliance articles for the week of July 24th, 2020:
1. SEC warns Form CRS falls short but doesn't prescribe fixes (Author - Mark Schoeff Jr., InvestmentNews)
As the Form CRS document is being delivered to clients, the SEC has warned investment advisers and brokers that they fell short of their expectations on the new client disclosure that went into effect June 30th. The SEC was very vague in explaining the deficiencies that they are seeing within the content of Form CRS and refers advisers to previously released instructions regarding the document. Even though the SEC did not provide much detail highlighting solutions, RIA in a Box vice president and general counsel, Chris DiTata stated “financial advisers need to pay particular attention to conflicts of interest — such receiving a financial benefit from sales of insurance and proprietary investment products — and to third-party payments.” While there is a lot of uncertainty about how much to disclose, advisors are encouraged to review their competitors’ Form CRS to gain a better understanding of what is and is not being included. The SEC’s Standards of Conduct Implementation Committee is hosting a Form CRS roundtable in the fall that advisers are hoping provides further guidance.
The SEC has recently announced that they have created the Event and Emerging Risks Examination Team (EERT) headed by Adam Storch, which is a new exam team focused on emerging threats and current events. SEC Chairman Jay Clayton highlights that “as recent events have demonstrated once again, market and operational risks can emerge suddenly. We should be working to increase our ability to react, including bringing our various resources to bear to these situations.” The team will look to prepare firms through examinations and other firm engagement and monitoring activities. The EERT team is also going to work with the OCIE staff to provide expertise and support in response to major market events like exchange outages, liquidity events, and cybersecurity breaches that put investor assets at risk. EERT is in good hands as OCIE Director Peter Driscoll, stated ““Adam brings a wealth of valuable experience, understanding of risks, and a background ideally suited to develop and lead this unit.”
After reviewing the recent Form CRS mandate, the SEC has decided to hold a roundtable this fall that will publicly assess how brokerage and advisory firms are completing the document. Although the SEC’s Staff Standards of Conduct Implementation Committee has found many great examples of well-constructed Form CRSs there are still many that need improved. Firms expressed numerous concerns while preparing the document in regard to how difficult they were to write given the requirements. The committee stated that “particular firms may need to consider ways to improve their relationship summaries and determine whether any specific amendments, or broader change in their overall approach, would be appropriate.” The date for this round table has not yet been established, however the SEC has suggested that firms seek additional guidance on the initial instructions and frequently asked questions about the Form CRS.
4. Goodbye Reg BI? Democrats vow tougher advisor regulation (Author - Andrew Welsch, Financial Planning)
The Democrats’ draft party platform is making a strong push to ensure that financial advisors are truly putting their client’s best interest first. The Democrats’ draft states it will take “immediate action to reverse the Trump administration's regulations allowing financial advisors to prioritize their self-interest over their clients' financial well-being.” If the November election goes as planned for them, they indicate how advisor regulation will steer back in the direction of stricter rules and regulations. The proposed party platform would also look towards strengthening Social Security and rejecting efforts to cut benefit or raise the retirement age. The platform also focuses on supporting reforms to permit states and cities to create public retirement account options to facilitate Americans’ ability to save for retirement. The outcome of the November election will have a huge impact on the changes we see moving forward within the industry. Stay tuned.
La Meer, a Silicon Valley-based fintech provider announced on Thursday its new cloud-based platform, called Grace, designed for advisers to comply with Reg BI’s four obligations in a modular fashion. Grace is comprised of three main portals- “a client management portal, a compliance portal and a client portal — and each portal leads to a dashboard where advisers can manage interactions with clients and exchange approvals and portfolio information with the compliance department for suitability reviews.” La Meer joins providers, like RIA in a Box, in offering compliance training tools for staff. The purpose of the new platform, Grace, is to provide an easier way for advisers to prove that they are compliant with Reg BI during examinations. As the times are evolving, we are continuing to see an increase in new tech players entering the financial services industry.
Don't forget to check out last week's top RIA compliance news articles that focus on RIA in a Box's newly released MyRIACompliance mobile app, the importance of business continuity planning during the COVID-19 pandemic, and The North American Securities Administrators Association ("NASAA") possibly requiring firms to have a succession plan.