Has your registered investment advisor firm implemented written compliance procedures? Has your Chief Compliance Officer signed off on those procedures? Have the procedures been reviewed and updated since October 5, 2004, the date they were required to be in effect? These are all questions that the SEC will be asking during an examination.
Under Rule 206(4)-7 of the Investment Advisers Act, all SEC registered advisor firms are required to review their compliance and supervisory policies and procedures at least annually. In fact, the Rule states it is unlawful to conduct advisory business unless (1) the firm has established written compliance programs, (2) annually reviews the programs, and (3) has designated a CCO.
Investment advisory firms can conduct internal reviews on their own or hire outside experts to audit their procedures. In either case, an official review needs to be done at least once a year. The review must address the adequacy of the firm’s policies and procedures, and whether these policies and procedures are being effectively implemented. In other words, are the policies and procedures reasonably likely to prevent a violation of SEC rules? Or, is your firm’s policy/procedure actually being followed by the investment advisory rep or supervisory staff?
We suggest continuous monitoring of a firm’s compliance and supervisory policies/procedures and updating as needed. A best practice is for the firm to establish in advance a schedule of different areas that will receive review each month or quarter.
Finally, the SEC has also added the documentation of the reviews to the Books and Records requirements for investment advisors. Therefore, it is imperative that your firm keep the documentation of your reviews for the required 5 year time frame.
If you have questions about your firm’s compliance policies and procedures, RIA Compliance Consultants can help. Please give us a call at your convenience.
Posted by Bryan Hill
Labels: Compliance Program