Investment Advisers Need to Look Beyond the Books and Records Requirements to Prepare for an SEC or State Securities Regulator Examination

September 18, 2013

Under Rule 204-2, the “Books and Records Rule,” of the Investment Advisers Act of 1940 (“Investment Advisers Act”), every investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) must make and keep true, accurate, and current certain books and records relating to its investment advisory business. Most state securities regulators have the same or similar recordkeeping requirements. All records required to be maintained by investment advisers under the Books and Records Rule or similar state securities regulations are subject to examinations by the SEC or state securities examiners. In order to be fully prepared for an SEC or state securities regulator examination, investment advisers may need to look beyond the books and records specifically outlined under the Books and Records Rule or similar state securities regulations.  SEC or state securities examiners may, and often do, request additional records that are not specifically required under the Books and Records Rule or similar state securities regulations. Many of these additional records specifically relate to or are incidental to records that are required under the SEC or state securities regulatory books and records requirements. Examples of additional records that may be requested include:

  • Risk matrix or risk inventory reports
  • Exception reports
  • Compliance checklists
  • Documentation to support investment adviser’s internal compliance review
  • Documentation to support understanding by the investment adviser’s employees of the investment adviser’s business and its compliance program (e.g., compliance manual acknowledgement forms, training logs, training / meeting attendance sign-in forms)

SEC and state securities examiners will request additional documentation outside of the required books and records to help assess the investment adviser’s overall culture of compliance, risk management, and internal control processes. To ensure that it is prepared for a regulatory examination, an investment adviser should think beyond the required books and records to develop documents that will display and support the investment adviser’s internal controls, testing and monitoring, and training programs the investment adviser has in place to help mitigate and prevent potential compliance violations.

For more information and guidance on maintaining the appropriate books and records for your registered investment adviser, register to attend a complimentary webinar, “Investment Adviser Books and Records,” hosted by RIA Compliance Consultants on Thursday, September 19, 2013, at 12:00 p.m. CDT. For more information and to register online for this event, click here.

RIA Compliance Consultants has a variety of sample forms to assist your investment adviser with maintaining the appropriate books and records, including: books and records documentation logs and suggested list of compliance files and reports, annual compliance calendar checklist, compliance training/meeting attendance sign-in form, compliance violations reporting form, and compliance manual acknowledgement form. For a complete list of our available forms, click here.

Posted by Bryan Hill
Labels: Books Records, Examination, Written Policies and Procedures