Published on Jan 6th, 2022 |

Staff Statement Regarding Form CRS Disclosures for 2022 | SEC Releases

As the new year begins, the SEC released a statement regarding Form CRS disclosures. 

The Committee reviewed different summaries from Firms and determined where compliance improvements appear to be needed.

What areas of Compliance Improvement were focused on for Form CRS Disclosures?

  • Key Areas for Compliance Improvement:
    • Use of Technical Language, Including Disclaimers
      • Summaries must be concise and direct, using plain English, and avoid legal jargon and highly technical business terms unless clearly explained.
      • Firms are also only permitted to include disclosures that are required or permitted by the firm’s instructions and the applicable item. Firms also need to avoid disclaimers and hedging language unless necessary or permitted.
    • Omission of Required Information
      • Firms must generally include all required headings, conversation starters and prescribed language. Firms may only omit or modify a required disclosure or conversation starter in limited circumstances where: (i) it is inapplicable to the firm’s business; or (ii) the specific wording required by the form’s instructions would be inaccurate with respect to the firm.
    • Reliance on Proposed, Rather than Final Instructions
      • There were errors in Form CRS from firms because they appeared to rely on the proposed instructions to Form CRS, rather than the adopted final instructions to Form CRS on the SEC website.
    • Lack of Specific References to More Detailed Information
      • Firms must include specific references to more detailed information in the relationship summary sections describing the firm’s services, fees and costs, and conflicts of interest.
      • At a minimum, these references must include the same or equivalent information to that required by Form ADV, Part 2A and Regulation Best Interest, as applicable. Cross-references or hyperlinks to these forms make this very easy.
    • Shortcomings in Descriptions of Relationships and Services; Fees, Costs, Conflicts, and Standard of Conduct
      • All information in a relationship summary must be true and may 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.
      • Disclosures in the relationship summary should be responsive and relevant to the topics covered.
      • Shortcomings in these areas were most commonly observed in these disclosures: Monitoring, Investment Authority, Limited Investment Offerings, Principal Fees and Costs, Wrap Fee Program Offerings and Fees, Extraneous Disclosures Regarding Standards of Conduct, and Firm and Financial Professional Compensation and Conflicts of Interest.
    • Modification and/or Supplementation of the Disciplinary History Disclosure
    • Issues with Prominently Displaying Relationship Summary on Firm Website
    • Issues with Description of Affiliate Relationships
    • Poor Design
    • Use of Marketing Language
    • Boilerplate
      • Avoid vague and boilerplate explanations.

Final Conclusion

The SEC is focusing on key areas for Compliance Improvement in 2022 regarding Form CRS Disclosures. In the statement, the Committee concluded that they encourage firms to familiarize themselves with the specific requirements of Form CRS.

The Committee provided recommendations to review the following documents below to help naturalize the specific requirements of Form CRS Disclosures.

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