Earlier this month, the SEC filed an administrative proceeding against an advisor firm for, among other things, failing to meet the requirements of Rule 206(4)-7 which requires an investment adviser registered with the SEC to adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act and the rules there under. During a follow-up visit the SEC felt the firm failed to adequately correct deficiencies noted during a previous examination. In addition, the firm had not implemented any written compliance programs designed to meet the requirements of Rule 206(4)-7. The firm was censured, order to cease and desist from violating several rules under the Advisers Act, and ordered to pay a monetary fine totaling $65,000.
This case is just the latest example of the seriousness with which the SEC is taking regarding the requirements of advisor firms to implement strong internal controls and written compliance programs designed to prevent the violation of federal securities laws. It is important to note that the compliance programs rule falls under the anti-fraud provisions of the Advisers Act. While the firm in this case had other issues, the key lesson to be learned is that the SEC will cite firms for simply failing to have compliance programs. This can be the case even if actual violations are not detected.
If your firm has not implemented written compliance programs, it is urgent you do so immediately. Rule 206(4)-7 has been in effect since October 2004 and the SEC will expect compliance programs to be in place, implemented, and reviewed on an annual basis.
If you would like to read the SEC’s entire administrative proceeding click on the following link here.