Category Archives: Conducting Risk Assessment

Conducting a Risk Assessment of an Investment Adviser

October 23, 2012

Under Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) are required to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and the rules that the SEC has adopted under the Investment Advisers Act.  Well-designed policies and procedures should also be able to detect violations that have occurred and to promptly correct any violations that have occurred. Most state securities regulators have adopted similar rules requiring investment advisers to develop and implement written compliance policies and procedures. As an investment adviser, the first step in developing written policies and procedures should be to identify the areas of risk related to the investment adviser’s practice and business model. This process of identifying risks that make the investment adviser vulnerable to violations of the Investment Advisers Act is often referred to as a “Risk Assessment,” a “Gap Analysis,” or the compilation of a “Risk Inventory.”

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