Today, November 19th, 2020, The Office of Compliance Inspections and Examinations (“OCIE”) released a Risk Alert for Investment Advisor Compliance Programs noting significant compliance issues related to Rule 206(4)-7 (the “Compliance Rule”) under the Investment Advisers Act of 1940. The most common issues OCIE cited have been issues related to the Compliance Rule.
Deficiencies and Weaknesses OCIE has Identified
1. Inadequate Compliance Resources
- Dual hatted CCOs without capacity or knowledge to appropriately fulfill their responsibilities.
- Firms did not allocate enough resources, staffing, training, or information technology, to implement an effective compliance program, evidenced by inaccurate/untimely filings, annual CCO reviews, and related books and records.
2. Insufficient Authority of CCOs
- CCOs lacked sufficient authority to develop and enforce appropriate policies and procedures, or access to critical compliance information.
- Senior Management did not have sufficient interaction with the CCO, which led to the CCO having limited knowledge about the Firm’s strategy and business operations to appropriately manage the Compliance Program.
3. Annual Review Deficiencies
- Advisers could not demonstrate they actually performed an annual review or observed annual reviews that failed to identify any significant problems that were there.
- No Evidence of Annual Review, including significant key risk areas
- Failure to identify key risks related to the Advisers Business.
4. Implementing Actions Required by Written Policies and Procedures
- Advisers did not implement or perform actions required by their policies such as:
- training employees, reviewing advertising materials, reviewing client accounts, and more.
5. Maintaining Accurate and Complete Information in Policies and Procedures
- Outdated, “off-the-shelf” policies and procedures.
- Utilizing procedures of affiliates (e.g., Broker-dealers), not tailored to their business.
6. Maintaining or Establishing Reasonably Designed Written Policies and Procedures
- Poorly written or implemented policies in the areas of portfolio management, marketing, trading practices, disclosures, advisory fees and valuation, safeguards for client privacy, required books and records, safeguarding of client assets, and business continuity plans.
What can you do?
Take a step back and assess your current compliance program. Utilize these deficiencies as a road map to potentially improve your compliance program and mitigate your regulatory risk.
Ask for help if needed and utilize this risk alert to support the importance to senior management of having adequate resources.
What can we do for you?
For those without the adequate resources or just looking for an independent assessment, we offer a variety of solutions to assist you in not only managing your compliance program for today, but for the future!
- We offer full-service compliance consulting to Investment Advisers
- On-going Testing, Targeted Testing, Mock SEC Exams, and more
- Our 5 Step Matrix System lets you choose the service(s) that are right for your business needs and resources.
- For the dual hatted CCO with not enough time in the day, look to Vigilant for assistance.
- Vigilant Compliance provides comprehensive compliance training tailored to standard and company-specific solutions
- Our 5 Step Matrix System is an outstanding resource for mutual funds that require experienced compliance oversight
- Vigilant Compliance provides mutual fund leaders with the knowledge they need to stay in compliance in today’s complex regulatory environment
- Vigilant can identify potential conflicts of interest, develop compliance programs for complex transactions and perform counter party reviews
- You can also complete required Code of Ethics training, and resolve SEC inquiries
- Vigilant has extensive experience working with SEC Registered Investment Advisers who manage ETF products, as well as manage the compliance program for ETFs
- Vigilant will provide your firm with all of the appropriate policies and procedures
- Vigilant provides multi-dimensional, sophisticated consulting services, and outsourced Chief Compliance professionals for new and existing broker dealers
- Vigilant can also support your CCO
- 5 Step Matrix System can provide your broker dealer with everything from simple advisory services to comprehensive regulatory staffing and support
- We also offer Broker Dealer Registration as well
- Vigilant can provide your broker dealer with an outsourced financial operations principal (FINOP) who helps your member firm meet its strategic goals
- Vigilant can assess current, existing, and potential risks to you and your company
- Vigilant provides outsourced Cybersecurity Services for your firm to mitigate cyber risks and attacks