The SEC will not extend the compliance date beyond June 30 for Regulation Best Interest and Form CRS. In a public statement, SEC Chairman Jay Clayton opined that “in times of uncertainty, investment professionals should not put their interests ahead of the interests of their clients and customers” and that Regulation BI and Form CRS codify these principles and related disclosures. He also warned that both OCIE and FINRA are working through their examination plans to ensure firms have implemented the new standards and disclosures. Mr. Clayton explained the SEC’s decision as the result of industry engagement from which the SEC believes that “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.”
As with most regulatory initiatives with good intentions, this decision falls heavily on smaller firms who might not make up the “substantial majority of retail investor assets” to which Mr. Clayton refers. Over 70% of the 13,000 registered investment advisers have less than $1 Billion in assets under management, which is a large number of advisers but a small percentage of the $83 Trillion in industry assets under management. These firms generally do not have the in-house resources to tackle the new regulations in a very difficult economic environment. We hope that the SEC considers some form of broad-based small firm relief or delay.