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SEC to Firms: You Must Report Disciplinary History on Form CRS

By Alex Padalka October 12, 2020

The SEC says that it has found various issues with the way broker-dealers and RIAs are reporting their disciplinary histories on the new customer relationship summary disclosure form.

Form CRS, as it’s known, is part of the SEC’s Regulation Best Interest and aims to give a concise, clear summary of a firm’s services, fees, conflicts of interest — and misconduct. The compliance deadline for Reg BI was June 30. 

But a review by the SEC’s Standards of Conduct Implementation Committee found that some firms didn’t fill out a response in the disciplinary section in the form, as well as examples of other missing information, according to a public statement the regulator published last week.

The SEC reminds firms that they must report disciplinary history on Form CRS if it had been reported on other forms, such as the Form ADV information disclosure and the Form U4 for registration or transfer.

“Firms do not have discretion to leave the answer blank or to omit reportable disciplinary history from the relationship summary,” the SEC says. “Firms should review their reportable disciplinary history and that of their financial professionals to ensure that their relationship summaries are accurate, complete and consistent with those other forms.”

Moreover, adding “descriptive or other qualitative or quantitative language” isn’t permitted, according to the SEC. 

The regulator has also published an FAQ specifically addressing a firm’s disciplinary and legal history. In addition to the guidance set out in the public statement, the FAQ spells out that firms must provide a “yes” or “no” answer in the required heading about disciplinary history, and that they may provide separate responses for the firm and for its financial professionals. 

The FAQ also says that firms can provide additional regulatory disclosures to retail investors, such as records from BrokerCheck or the Investment Adviser Public Disclosure website, for specific professionals. 

The SEC also plans to host a roundtable on October 26 about its initial review of relationship summaries. 

An analysis of around 6,200 brokerages and investment advice firms conducted this summer by the Wall Street Journal found that at least 1,300 incorrectly stated that neither the firm nor any of its financial professionals had any disciplinary or legal events in their past.

An earlier analysis by FA-IQ sister publication Ignites found major differences in the quality of the forms posted online by firms including AmeripriseEdward JonesFidelityMerrill LynchLPL FinancialRBCT. Rowe Price and TD Ameritrade

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Tags:  Regulatory/legal issues , Edward Jones , Fidelity , LPL Financial , Merrill Lynch , TD Ameritrade , Ameriprise , RBC

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