At the beginning of 2021, the Securities and Exchange Commission (“SEC”) released its exam priorities report for the year.[1] In the release, the SEC stated the following: Show “The Division will continue to review the compliance programs of RIAs, including whether those programs and their policies and procedures are reasonably designed, implemented, and maintained.” This statement was in line with the Risk Alert they had previously issued in November 2020 on investment adviser compliance programs.[2] In the Alert, the SEC noted the main deficiencies found during their recent exam of advisers, which included lack of appropriate resources devoted to compliance, insufficient authority given to the Chief Compliance Officer (“CCO”), inability to demonstrate the performance of required annual reviews, and inadequate and appropriately customized written policies and procedures. To further solidify the message of their focus on firm compliance programs, to date in 2021 the SEC has brought numerous enforcement cases against investment advisers for not having appropriate compliance controls and written policies and procedures covering areas that include but are not limited to mutual fund share class selection, best execution, revenue sharing arrangements, conflicts of interest, cybersecurity, custody, charging advisory and performance fees, and disclosures. To assist CCOs with ensuring the soundness of their firm’s compliance programs, this Risk Management Update provides a detailed list of compliance tasks that should be completed by year end (as applicable), along with suggested risk management tips to consider. Compliance Checklist[3]
ConclusionThe amount of money an advisory firm must devote to compliance in order to maintain a solid compliance program continues to grow each year. Mainly, this is due to the complexity of current and new regulations and the extensive amount of administrative work involved, as evidenced by the checklist provided herein. While a firm cannot control the issuance of regulations, there are ways to control costs. Over the last few years, implementing compliance technology has become a very cost-efficient way to administer compliance throughout a firm. Outsourcing various compliance functions, including the role of CCO also provides an effective way to save money in this area. Importantly, when determining the amount that should be allocated to the compliance function, senior management should consider the price tag for non-compliance. For example, for fiscal year ended 2020, the SEC imposed penalties totaling in aggregate over $1.1 billion and ordered disgorgement payments in the amount of $3 billion.[6] To find out about technology solutions and outsourcing services offered by Core Compliance, and how we can further assist with year-end compliance planning and beyond, please contact us at (619) 278- 0020. Author: Tina Mitchell, Managing Director, Consultation Services; Editor: Janice Powell, Sr. Compliance Consultant, Core Compliance & Legal Services (“Core Compliance”). Core Compliance works extensively with investment advisers, broker-dealers, investment companies, and managers to private funds on regulatory compliance issues. This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax professional. [1] See https://www.sec.gov/files/2021-exam-priorities.pdf [2] See https://www.sec.gov/files/Risk%20Alert%20IA%20Compliance%20Programs_0.pdf [3] This list is not all inclusive and is only meant to provide guidance on what CCOs should be considering. [4] See https://www.corecls.com/news-events/the-new-erisa-exemption-what-financial-professionals-need-to-know [5] See https://www.corecls.com/news-events/key-elements-of-the-new-marketing-rule [6] See https://www.sec.gov/files/enforcement-annual-report-2020.pdf What is a seasoned security quizlet?A "seasoned security" is one that has "seasoned" in the marketplace. Basically, it is a security that has completed its IPO and is now exchange listed, with extensive trading activity and marketplace information.
What is the SEC code of ethics?1. Honest and Ethical Conduct. All directors, officers and employees shall behave honestly and ethically at all times and with all people. They shall act in good faith, with due care, and shall engage only in fair and open competition, by treating ethically competitors, suppliers, customers and colleagues.
Who is considered an access person?An access person is a supervised person who has access to nonpublic information regarding clients' purchase or sale of securities, is involved in making securities recommendations to clients or who has access to such recommendations that are nonpublic.
What is an access person under the Advisers Act?The Advisers Act defines "Access Person" to mean any supervised person of an investment advisor who (1) has access to nonpublic information regarding any advisory client's purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any reportable fund (i.e., any mutual fund advised by ...
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