Client Focused Reforms
January 1, 2023
Although the Client Focused Reforms (CFRs) were implemented on June 30, 2021, and December 31, 2021, in 2022 Securities regulators were focused on how firms have implemented the conflict-of-interest rules.
As part of the CFR Sweep, regulators are evaluating various aspects, including the identification of material conflicts of interest at the firm and individual registrant levels, the existence of adequate controls to mitigate risks associated with such conflicts, addressing identified conflicts in the client's best interest, providing sufficient disclosure to clients, and ensuring written policies and procedures effectively address conflicts of interest.
Registrants should note that common material conflicts of interest include investments in related issuers and conflicts arising from internal compensation arrangements. Registrants should also, provide comprehensive disclosure to clients, describing the nature and extent of conflicts, potential impacts and risks, and how conflicts are addressed. While the current focus is on conflicts of interest, registrants should also prepare for forthcoming CFR sweeps covering other obligations.
Takeaways:
Registrants are advised to keep their policies and procedures manuals up to date to align with regulatory developments and amendments by staying informed and maintaining a robust compliance framework. In addition, by proactively addressing conflicts of interest, registrants can mitigate risks, enhance their relationships with clients and avoid be cited as having deficiencies in regulatory reviews.
This publication is not intended to constitute legal advice. No one should act on it or refrain from acting on it without consulting with a lawyer.
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