SEC Risk Alert | Annual Compliance Review Observations
SEC Releases
Introduction
On September 14, 2026, the SEC Division of Examinations issued a Risk Alert highlighting observations from recent examinations regarding Investment Advisers’ annual reviews of their compliance policies and procedures under Rule 206(4)-7 of the Investment Advisers Act of 1940.
The Compliance Rule requires SEC RIAs to review, at least annually, the adequacy of their compliance policies and procedures and the effectiveness of their implementation.
The Risk Alert identifies recurring deficiencies concerning the timeliness, completeness, execution, documentation, and follow-up associated with annual compliance reviews. The SEC’s observations provide Investment Advisers with areas to consider when evaluating whether their annual review processes are appropriately designed and effectively implemented.
Key Takeaways
- Conduct the annual review on time. Advisers should ensure their annual compliance review is conducted at least annually and avoid gaps or extended review periods.
- Have clear review procedures. Written procedures should establish how the annual review will be conducted, including the scope, testing, validation, and documentation involved.
- Follow the procedures. Completing an annual review is not enough if the Adviser does not follow the review process established in its own policies and procedures.
- Review the actual business. Compliance policies and procedures should be evaluated against the Adviser’s current business activities and practices to identify gaps or inconsistencies.
- Consider changes during the year. Annual reviews should take into account changes to the Adviser’s business, compliance matters that arose during the year, and applicable legal and regulatory developments.
- Document the work performed. Advisers should maintain appropriate records supporting their annual review, including testing, workpapers, checklists, identified issues, and other review documentation.
- Address identified deficiencies. Issues identified during the annual review should be appropriately addressed, including implementing recommended changes and corrective actions.
- Track prior issues. Advisers should confirm that previously identified deficiencies and corrective actions have actually been resolved.
- Consider interim reviews. Significant compliance events, changes in business arrangements, or regulatory developments may warrant a compliance review before the next annual review.
Vigilant’s Conclusion
The SEC’s Risk Alert reinforces that an annual compliance review should be more than a recurring calendar exercise. Advisers should evaluate whether their review process is timely, comprehensive, consistent with their written procedures, aligned with their actual business practices, appropriately documented, and followed by corrective action where necessary.
Advisers should also consider whether their procedures clearly establish the scope and methodology of the review, incorporate relevant changes to the adviser’s business and regulatory environment, and maintain sufficient documentation to demonstrate the work performed. Issues identified through the review should be appropriately tracked through resolution.
The SEC’s observations serve as a reminder that the effectiveness of an annual compliance review depends not simply on whether the review was completed, but on the quality and substance of the review and the Adviser’s response to issues identified through the process.
If you are behind on your Compliance Testing or have not had a 206(4)-7 Annual Review Report completed, schedule a call with Vigilant to learn more about how we can help.