SEC Issues Joint Statement on New FAQs Focusing on Disciplinary Disclosures for Form CRS/Form ADV Part 3

November 02, 2020

On October 8, 2020, the United States Securities and Exchange Commission (“SEC”) issued a new joint statement from Chairman Jay Clayton, Dalia Blass, Director of the Division of Investment Management, and Brett Redfearn, Director of the Division of Trading and Markets regarding the Form ADV Part 3. In the statement, the SEC Chairman and Directors discussed the importance for investment adviser and broker dealer firms to clearly and succinctly make required disciplinary disclosures in the Form CRS/Form ADV Part 3. The statement highlighted the publication of several new FAQs for the Form CRS/Form ADV Part 3, which are now available here. To read the SEC’s joint statement, click here.

Joint Statement

The joint statement and new FAQs clarify that investment adviser firms do not have discretion to omit the disciplinary section, even if neither SEC Securities and Exchange Commission (SEC) announcedSEC compliance outreach program's national seminarthe investment adviser firm nor its financial professionals have any disciplinary events to disclose. The firm must state a “Yes” or “No” answer.

Furthermore, no descriptive language is permitted in the disciplinary section. The FAQs now make clear that a firm may at most clarify that the firm has disclosures but its financial representatives do not (or vice versa, as applicable), e.g. “Firm – yes. Financial professionals – no.” Even a simple descriptive statement, such as “No for our firm. Yes for only one of our 50 financial professionals” would be deemed inappropriate by the SEC.

Investment adviser firms must implement robust compliance programs, including training for representatives, designed to ensure that the Form CRS/Form ADV Part 3 relationship summary is updated, filed, and delivered as required on an ongoing basis. Such training should ensure that the investment adviser’s representatives have a practical understanding of how to comply with the rule in their role at the firm, and not simply an academic understanding of the requirements. In addition, in-house compliance testing is necessary to help the investment adviser firm prepare for an SEC examination and ensure proper compliance with the Form CRS/Form ADV Part 3 requirements. The investment adviser should ensure it has procedures and compliance testing in place to confirm that all required disciplinary and legal events have been reported to the firm and disclosed on the applicable regulatory form(s) and brochures.

RIA Compliance Consultants has developed a Form ADV Part 3 Comprehensive Compliance Package which includes the drafting and filing of your Form CRS/Form ADV Part 3 by one of our Senior Compliance Consultants, our Form ADV Part 3 Compliance Manual Update Section, our Form ADV Part 3 Compliance Review Tool Module, and Form ADV Part 3 Training materials, available here.  Also available a la carte are several Form ADV Part 3 sample compliance form and training materials, including the Sample WSP/CoE Section: Form ADV Part 3, Form ADV Part 3 – Compliance Review Module, Form ADV – Part 3 – Conversation Starters Script, and Form ADV – Part 3 – Cover Letters for Relationship Summary.

Contact Us

If your investment adviser firm is an existing client of RIA Compliance Consultants and would like assistance reviewing its disciplinary disclosures for Form CRS/Form ADV Part 3, developing customized policies and procedures, and/or implementing compliance testing for the Form CRS/Form ADV Part 3, we encourage you to speak with your compliance consultant. Or, if you are not an existing client of RIA Compliance Consultants, click here to set up an introductory call with our Business Development Team.

Related Posts

FAQs on Form ADV Part 3 

Form CRS/Form ADV Part 3 Testing for Compliance – June 18, 2020

Updating Your Investment Adviser’s Compliance Manual for the New Form ADV Part 3 – May 26, 2020

Posted by Grant Parr
Labels: ADV Part 3, SEC
Tagged: