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SEC Maintains June 30 Compliance Date for Regulation Best Interest and Form CRS

April 02, 2020

Firms will need to separately engage with the US Securities and Exchange Commission on delays related to the coronavirus (COVID-19) pandemic.

In a public statement released April 2, US Securities and Exchange Commission (SEC) Chairman Jay Clayton stated that the June 30, 2020 compliance date for Regulation Best Interest (Reg. BI) or Form CRS will remain in place, and the SEC will not be granting an industrywide extension.[1]

The SEC’s engagement with broker-dealers and investment advisers over the last 10 months regarding progress firms have made toward implementing the rules, combined with its view that “the continued implementation of these conduct and transparency initiatives, individually and collectively, will significantly benefit Main Street investors,” led the SEC to conclude that the June 30, 2020 compliance date “remains appropriate.”[2] In this regard, “firms should continue to make good faith efforts around operational matters to ensure compliance by June 30, 2020, including devoting resources as necessary and available in light of the circumstances.”

At the same time, the SEC recognized that disruptions related to COVID-19 may impact firms’ abilities to meet the compliance date, and invited those firms to engage with the SEC.[3]

Chairman Clayton expressed his expectation that the SEC and its staff would “take the firm-specific effects of such unforeseen circumstances (and related operational constraints and resource needs) into account in our examination and enforcement efforts.” The SEC will be conducting examinations after the compliance date, but “will be focusing 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.”

The SEC’s Office of Compliance Inspections and Examinations (OCIE) will also be issuing two risk alerts in the coming days: one on the scope and content of initial Reg. BI exams, and another with similar information with respect to Form CRS.

What Can Firms Do Now?

  • Continue working toward implementing Reg. BI and Form CRS compliance regimes
  • Monitor and document disruptions related to COVID-19; for example:
    • Challenges posed by governmental shelter-in-home or closure orders and restrictions
    • Diversion of resources available to prepare disclosures and policies and procedures
    • Diversion of technology resources necessary to implement delivery of relevant disclosures
    • Challenges in sending customer communications that are required to be sent in paper form, including office closures and staff reductions affecting fulfillment
    • Issues related to third-party vendors (e.g., printing or distributing disclosures)
    • Challenges in providing adequate training to financial professionals
    • Other resource challenges associated with serving clients

We are monitoring these and other developments relating to COVID-19 closely, and will continue to provide updates.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge, which includes a Financial Services COVID-19 Task Force to focus on the issues specifically impacting our financial services industry clients.

We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:

Boston
David C. Boch
Jason S. Pinney

New York
Christine M. Lombardo

Washington, DC
John V. Ayanian
Brian J. Baltz
Ivan P. Harris
Thomas S. Harman
Lindsay B. Jackson
Daniel R. Kleinman
Amy Natterson Kroll
Monica L. Parry
Michael B. Richman
Ignacio A. Sandoval
Steven W. Stone
Natalie R. Wengroff
Kyle D. Whitehead



[1] See Public Statement, Chairman Jay Clayton, Investors Remain Front of Mind at the SEC: Approach to Allocation of Resources, Oversight and Rulemaking; Implementation of Regulation Best Interest and Form CRS (Apr. 2, 2020).

[2] “We believe firms with account relationships comprising a substantial majority of retail investor assets have made considerable progress in (1) adjusting their business practices, (2) supplementing and modifying their policies and procedures, and (3) otherwise aligning their operations and preparing for the requirements of Reg BI and the obligation to file and begin delivering Form CRS.”

[3] “To the extent that a firm is unable to make certain filings or meet other requirements because of disruptions caused by COVID-19, including as a result of efforts to comply with national, state or local health and safety directives and guidance, the firm should engage with us.”