SEC Office of Compliance Inspections and Examinations Publishes Risk Alerts Providing Advance Information Regarding Inspections for Compliance with Regulation Best Interest and Form CRS

The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (OCIE) has issued two risk alerts: Examinations that Focus on Compliance with Regulation Best Interest and Examinations that Focus on Compliance with Form CRS. These risk alerts provide broker-dealers and investment advisers with advance information about the expected scope and content of the initial examinations for compliance with Regulation Best Interest and Form CRS.  Regulation Best Interest and Form CRS are key components of a broader package of rules and interpretations, adopted contemporaneously on June 5, 2019, to enhance the quality and transparency of retail investors’ relationships with broker-dealers and investment advisers.  The compliance date for Regulation Best Interest and Form CRS is June 30, 2020.

Initial examinations of Regulation Best Interest will focus on assessing whether broker-dealers have made a good faith effort to implement policies and procedures reasonably designed to comply with Regulation Best Interest, including the operational effectiveness of broker-dealers’ policies and procedures.  Initial examinations of Form CRS will focus on assessing whether firms have made a good faith effort to implement Form CRS, including reviewing the filing and posting of a firm’s relationship summary as well as its process for delivering the relationship summary to existing and new retail investors.

“Regulation Best Interest and Form CRS are critical to the protection of Main Street investors, and we feel it is important to share our plans for initial examinations to help firms assess their preparedness as the June 30, 2020 compliance date nears,” said Pete Driscoll, Director of OCIE.  “Based on conversations we have had with the industry, we know firms have made substantial progress in implementing these new rules.  We understand that this implementation will be an iterative process, and our focus will be on firms continuing good faith and reasonable efforts, including taking into account firm-specific effects from disruptions caused by COVID-19.”

“OCIE has been working closely with both FINRA and SEC staff to ensure that we harmonize our examination efforts for Regulation Best Interest across our examination programs,” said John Polise, OCIE’s National Director for the Broker-Dealer and Exchange program.  “I encourage firms to review the Risk Alerts to understand the scope of initial exams.”

OCIE conducts examinations of SEC-registered investment advisers, investment companies, broker-dealers, self-regulatory organizations, clearing agencies, transfer agents, and others. It uses a risk-based approach to examinations to fulfill its mission to promote compliance with U.S. securities laws, prevent fraud, monitor risk, and inform SEC policy. To see other OCIE publications, please visit www.sec.gov/ocie.