By Anne Sherry, J.D.
The SEC announced an enforcement sweep resulting in 27 settlements with advisers and broker-dealers for failing to file and deliver Form CRS. Under SEC rules that went into effect a year ago, SEC-registered financial firms with retail clients must file a Form CRS with the SEC, deliver the form to clients, and post it on their website. None of the 27 investment advisers or brokers filed, delivered, or posted their Form CRS until having been reminded, sometimes twice, by the Division of Examinations or FINRA, respectively.
The settlements range from $10,000 to $97,523, with the median at $25,000. Together, the penalties total more than $900,000. The SEC also censured the firms and ordered them to cease and desist from further violations.
Under the Exchange Act and Advisers Act, SEC-registered brokers and advisers who have retail clients must deliver a relationship summary that discloses certain information about the firm, including the services it provides, the fees retail investors will pay and the conflicts of interest they create, and the disciplinary history of the firm’s representatives. Firms were required to deliver the Form CRS to prospective and new retail investors by June 30, 2020, and to existing retail clients by July 30, 2020.
In each case, the SEC or FINRA contacted the firms after they failed to meet the deadline for filing the Form CRS. In the case of the investment advisers, the Division of Examinations again contacted the firms to announce an examination relating to the failure to file, and only then did the advisers file and deliver the relationship summary.
Gurbir S. Grewal, Director of the SEC’s Enforcement Division, said that the actions "reinforce the importance of meeting [filing and disclosure] obligations and providing retail investors with information that is intended to help them understand their relationships with their securities industry professionals." Adam S. Aderton, Co-Chief of the SEC Enforcement Division’s Asset Management Unit, said, "these firms deprived their clients and customers of the benefits" of the information required by Form CRS, which helps inform their investment choices.