Compliance and Ethics Are Not Solely the Responsibility of an Investment Adviser’s CCO

February 08, 2012

Reading time : 3 minutes

On January 31, 2012, the U.S. Securities and Exchange Commission (“SEC”) held a Compliance Outreach Program National Seminar in Washington, D.C. for investment advisers and investment companies. In the past, these seminars were generally referred to as “CCO Outreach Programs.” During the introductory remarks for the seminar, Carlo V. di Florio, Director, Office of Compliance Inspections and Examinations for the SEC, explained the reason for the changed program title. Mr. di Florio indicated that the change is based on the SEC’s desire through both its outreach programs and its examination program to “elevate the role of compliance by underscoring that it is not a responsibility that stops at the desk of the CCO” and that the SEC’s intention is to continue its outreach and support for investment adviser’s chief compliance officers (“CCO”).

During his speech, he went on to emphasize the importance of strong risk management controls including strong compliance programs and he emphasized the importance of senior management in implementing an investment adviser’s culture of compliance throughout the firm. Mr. di Florio stated, “Strong risk management controls, including a solid compliance program, are a key responsibility of everyone in a regulated entity, but the right culture and tone at the top are especially the responsibility of senior management and the board. A CCO who does not have the full support and engagement of senior management and the board is not going to be effective, and there is nothing we want more than to help CCOs to be effective. We will focus most intently on firms where we sense that senior management and the board are not setting the appropriate tone and are failing to support key risk and control functions with adequate resources, independence, standing and authority.”

One thing that was clear in his speech is that senior management should expect to be more involved in the audit process going forward. He indicated that one thing revealed during the financial crisis was the need for better oversight at senior management levels. As a result of this, the SEC will be seeking to engage senior management on critical business, risk and regulatory issues. Senior management should take the primary role in “reinforcing the tone at the top, driving a culture of compliance and ethics and ensuring effective implementation of risk management in key business processes, including strategic planning, capital allocation, performance management and compensation incentives.”

These are some key points that an investment adviser should keep in mind this year when it is conducting its annual assessment of its written compliance program and determining how prepared it is for a regulatory exam. Investment advisers should examine the role of senior management in the compliance review process and the compliance program in general. Part of the assessment should always include an analysis of whether the investment adviser is dedicating enough resources and putting enough emphasis on the importance of the investment adviser’s compliance program.

RIA Compliance Consultants can assist you with developing, reviewing, or conducting an annual assessment of your investment adviser’s compliance program. If you are interested is speaking with one of our consultants about the support RIA Compliance Consultants can provide to your investment adviser, contact your consultant or click here to schedule a time to speak with one of our consultants.

Posted by Bryan Hill
Labels: Compliance Program, Compliance Training, SEC