Data-driven Regulation Yields Better Results

Think back to the early weeks of the COVID-19 pandemic and the efforts many of us made to wash our groceries to combat the spread of the virus. At the time, the data suggested that surfaces were the primary vector for transmission. As our knowledge grew, we learned that COVID-19 was an airborne disease. A rule requiring everyone to wash their groceries would have been an unhelpful burden.

Securities and Exchange Commissioner (SEC), Caroline A. Crenshaw, used this analogy of bad or incomplete information leading to unnecessary behaviors to explain the indivisible relationship between good regulations and good data. Her keynote address at the 8th Annual Conference on Financial Market Regulation (CFMR) focused on several cases of where the SEC needs more and better information to ensure it can regulate effectively.

Among Commissioner Crenshaw’s highlighted cases was Regulation Best Interest (Reg BI) and Form CRS (customer relationship summary form), a disclosure intended to provide investors with information about the nature of their relationships with their investment professionals. Crenshaw discussed how limited investor testing of the forms to investor comprehension of disclosures, along with indications that they may not be working as intended, hampers the SEC’s ability to regulate effectively.

The challenge for brokers is the amount of flexibility the SEC has given in the design of Form CRS, combined with exams that test the operational effectiveness of brokers’ procedures to deliver the forms.

Mediant understands this and has commented on the hidden complexity of Form CRS delivery. For example, initial delivery can be straightforward, but subsequently the forms need to be sent to specific clients and prospects according to a range of activity-based triggers. Inadequacies or delays in the process prevent brokers from engaging in a variety of new business activities, whether that’s with existing clients or prospects, resulting in risks that include reputational damage, fines and lost business.

Mediant provides technology and technology-enabled solutions that help brokers provide effective regulatory oversight. Find out more about Form CRS distribution and management and how partnering with Mediant benefits both broker and regulator by ensuring an efficient, compliant and auditable Form CRS process.