Compliance Program Oversight Failure for an RIA Results in $150k Fine
SEC Releases
Introduction
The SEC announced on September 20th, 2024, that a New York RIA with $723 Million in AUM was charged $150,000 for compliance program failures.
Under Section 206(4) of the Advisers Act and Rule 206(4)-7, Firms must adopt and implement written policies and procedures reasonably designed to prevent violations. Failures to create a proper compliance program can result in large fines whether it be marketing, recordkeeping, or custody violations.
It is vital that Firms assess the effectiveness of their program to avoid costly regulatory headaches.
What Happened?
- From December 2018 through May 2022, the Firm failed to implement important aspects of their compliance program.
- The compliance program failed to conduct:
- Any compliance training, and specific code of ethics training, for supervised persons.
- Annual certifications were completed by supervised personnel attesting to their understanding and compliance with company policy.
- “Spot-checks” of books and records that must be maintained per the language in the compliance manual.
- “Periodic Inspections” of the principal place of business to ensure no prohibited practices were occurring, per the language in the compliance manual.
- Any compliance training, and specific code of ethics training, for supervised persons.
- The Firm took remedial action in August 2022 by hiring an independent compliance consultant and adding staff to their compliance team.
- While the SEC took the remedial actions into consideration, the Firm had to pay a $150,000 fine.
Vigilant’s Conclusion
While detailed and thorough compliance manuals are important for a successful program, implementation is the final requirement to limit one’s risk of enforcement action.
Firms should evaluate the effectiveness of their compliance programs through annual testing at the minimum.
It is vital to keep these tests documented to provide evidence that the compliance program is being implemented.
Vigilant offers an expansive list of compliance solutions for many different Firm types to help reduce regulatory risk.