The updated FAQs clarify that professional legal representatives are not "retail customers/investors" for purposes of Regulation Best Interest ("Reg BI") and Form CRS, and they allow for non-English relationship summaries to be provided in certain circumstances.
As of June 30, 2020, all broker-dealers with retail customers must comply with Reg BI, and all broker-dealers and investment advisers must comply with Form CRS requirements with respect to their retail customers/investors. Adding to previously issued FAQs addressing various issues with respect to both of these impending obligations, on February 11, 2020, the Commission Staff issued updated FAQs on both Reg BI and Form CRS in response to industry inquiries.
The updated FAQs, among other things, address who is considered a "retail customer" or "retail investor" for purposes of compliance with Reg BI and Form CRS, respectively. Both Reg BI and Form CRS similarly define "retail customer" and "retail investor" as "a natural person, or the legal representative of such natural person," who, among other requirements, uses a recommendation "primarily for personal, family, or household purposes."
The use of broad "legal representative" language has raised significant queries by the industry. Of particular interest to professional fiduciaries, the FAQs clarify that for purposes of Reg BI and Form CRS, a "retail customer" and "retail investor," respectively, would not include a professional "legal representative" (i.e., a regulated financial services industry professional) such as registered investment advisers; broker-dealers; corporate fiduciaries, including banks, trust companies, and the like; or insurance companies. Nor would the employees and other regulated representatives of these entities be considered retail customers or investors for purposes of Reg BI and Form CRS.
Recognizing the potential impact of Form CRS obligations in the cross-border context, Staff also clarified that firms that regularly communicate with retail investors in a language other than English may deliver a relationship summary to their clients in that language, as long as the firm also delivers a separate English version of the relationship summary at the same time. Staff did not indicate whether this same clarification would apply for purposes of Reg BI compliance.
As the compliance date for Reg BI and Form CRS approaches, firms should consider this and any forthcoming FAQ guidance in preparing for implementation.
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