Regulatory compliance stops for nothing. Not even the coronavirus. In a recent article in Investment Advisor magazine, Reporter Melanie Waddell wrote that the Securities and Exchange Commission (SEC) intends to press ahead with its June 30th compliance date for Regulation Best Interest and the Customer Relationship Summary form (CRS,) while being mindful of coronavirus disruptions
That is not to say the SEC is entirely heartless…It has provided some regulatory relief over the past month or so in light of the current pandemic. However, as announced by SEC Chairman Jay Clayton, the compliance date for what many financial services sector compliance professionals see as the two most onerous rules – Reg BI and form CRS – will remain intact.
Clayton notes that pre-virus, firms have made “considerable progress” in adjusting business practices, supplementing and modifying policies and procedures, and otherwise aligning their operations to comply with Reg BI and Form CRS. Clayton also expects advisors to comply with “other requirements.”
Can’t make Reg BI/CRS deadline, ask for SEC help
Clayton encourages advisors or broker-dealers to “engage” with the SEC if COVID-19 disruptions cause them to miss deadlines for certain filings or to meet other requirements. Waddell reports that advisors are not overly concerned, because while the coronavirus pandemic might make implementation of the new regulatory requirements a bit more cumbersome for firm compliance officers and leadership, many think the show must go on.
Use this time to communicate with clients
Form CRS, AKA Form ADV Part 3, is seen by many as providing another opportunity to communicate with clients – particularly in a pandemic. Most clients are expected not to read the communications, just to note that their advisor has reached out. Some advisors maintain that the “average client’s attention span doesn’t lend itself to the current regulatory document requirements,” so providing a simple document that hits all the high notes and is even read is optimal.
In-COVID-19/Post COVID-19 exams
When it comes to exams and enforcement, Clayton says the SEC expects to consider “the firm-specific effects of such unforeseen circumstances (and related operational constraints and resource needs)” as they relate to the coronavirus pandemic. SEC examiners will focus on whether firms have made “a good faith effort to implement policies and procedures necessary to comply with Reg BI, while also providing an opportunity to work with firms on compliance and other questions.”
FINRA will follow the SEC’s lead
Waddell reports that the Financial Industry Regulatory Authority (FINRA) will take the same approach as the SEC when reviewing broker-dealers and their associated persons for compliance with Reg BI and Form CRS. FINRA, the enforcer of Reg BI, also emphasized that it will not ignore suitability violations.
Initial Reg BI exams will focus on assessing whether broker-dealers have made a good faith effort to implement policies and procedures reasonably designed to comply effectively.
Agency exams expected in the first year
Following the June 30th deadline, exams by the agency’s Office of Compliance Inspections and Examinations (OCIE) are expected to roll out “during the first year after the compliance date.” Most will simply be designed to affirm a firm’s policies and procedures have been reasonably designed to achieve compliance.
Waddell reports that Pete Driscoll, director of OCIE, says that 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.”
Pandemic or not, compliance is still the rule
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