The staff (“staff”) of the SEC’s Office of Compliance Inspections and Examinations issued a Risk Alert to provide SEC-registered investment advisers and broker-dealers (collectively, “firms”) with information on the scope and content of initial examinations to assess compliance with Form CRS (“Form CRS” or “relationship summary”) after the form’s June 30, 2020 compliance date.1 The staff noted that while it understands that COVID-19 has created challenges for firms, the SEC has not extended the Form CRS compliance date.
The staff stated that initial examinations of firms with retail investors2 conducted after the compliance date may assess whether firms have made a good faith effort to implement Form CRS,3 including with respect to the following requirements:
- Delivery and Filing. The staff may review whether a firm has filed, amended and prominently posted the relationship summary on its website in accordance with the Form CRS instructions. The staff may also evaluate the firm’s process to deliver the relationship summary to retail investors and whether the firm’s policies and procedures address the required relationship summary delivery processes and dates. In particular, the staff may review records of the dates that each relationship summary was provided to retail investors to confirm compliance with the Form CRS delivery obligations.
- Content. The staff may review whether a firm’s relationship summary includes all information required by Form CRS; and contains true and accurate information and does not omit any material facts necessary in order to make the required disclosures, in light of the circumstances under which they were made, not misleading.
- Formatting. The staff may review a firm’s relationship summary to assess whether it is formatted in accordance with the Form CRS instructions, including whether it includes particular wording and uses text features where required, and is written in plain English.
- Updates. The staff may review a firm’s policies and procedures for updating the relationship summary in compliance with the Form CRS requirements.
- Recordkeeping. The staff may review a firm’s records related to delivery of the relationship summary and their recordkeeping policies and procedures to assess compliance with applicable delivery and recordkeeping obligations.
In light of the Risk Alert, firms with retail investors should continue to focus on compliance with Form CRS by the June 30, 2020 compliance date, including the adoption and implementation of policies and procedures designed to ensure compliance with the Form CRS requirements. Please contact your primary attorney in Seward and Kissel’s investment management group for assistance with preparing a relationship summary.
Seward & Kissel has created a “Template Form CRS Relationship Summary for Investment Advisers” to assist investment advisers with preparing a relationship summary. This document and other compliance tools, resources, webinars and publications are available on our SKRC Online Compliance Subscription Service, which is free to our active investment adviser clients. Please click here to request free client access.
1 See SEC Office of Compliance Inspection and Examinations Risk Alert, “Examinations that Focus on Compliance with Form CRS” (April 7, 2020) available at https://www.sec.gov/files/Risk%20Alert%20-%20Form%20CRS%20Exams.pdf. See also Seward & Kissel’s client alert “Overview of Form CRS Relationship Summary for Investment Advisers” (April 9, 2020) available at https://www.sewkis.com/publications/overview-of-form-crs-relationship-summary-for-investment-advisers/.
2 A “retail investor” is defined as “a natural person, or the legal representative of such natural person, who seeks to receive or receives services primarily for personal, family or household purposes.” Exchange Act Rule 17a14(e)(2); Advisers Act Rule 204-5(d)(2). SEC-registered investment advisers (“advisers”) are not required to deliver Form CRS to retail investors in pooled investment vehicles, such as hedge funds, private equity funds and venture capital funds, unless the adviser has a separate basis for delivering a relationship summary to these investors, such as separately managed account arrangements. Therefore, advisers that only advises these types of pooled investment vehicles are not required to prepare, file or deliver Form CRS even if those vehicles include retail investors. See SEC FAQs on Form CRS available at https://www.sec.gov/investment/form-crs-faq.
3 See SEC Instructions to Form CRS available at https://www.sec.gov/rules/final/2019/34-86032-appendix-b.pdf.