Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) to:
Category Archives: Written Policies and Procedures
Investment Advisers Must Take Steps to Protect Their Clients from Identity Theft and Third-Party Wire or Check Fraud
October 15, 2013
On April 10, 2013, the U.S. Securities and Exchange Commission (“SEC”) jointly with the Commodity Futures Trading Commission issued final rules and guidelines to require certain regulated entities to establish programs to address risks of identity theft. The compliance date, November 20, 2013, for the SEC’s Regulation S-ID: Identity Theft Red Flags Rule is quickly approaching and investment advisers meeting the definition under the new rules of a “financial institution” or a “creditor” that offer or maintain one or more “covered accounts” will need to make sure that they meeting the new regulatory requirements by the compliance date. (Click here to view our previous article on Regulation S-ID or click here to purchase our previously recorded webinar on this topic.) Many investment advisers may determine that Regulation S-ID does not apply to them, but this does not mean that these investment advisers do not need to have any policies and procedures relating to identity theft and protecting the clients’ assets.
Investment Advisers Must Customize Their Compliance Programs
October 01, 2013
As we previously indicated, many investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) still have trouble meeting the requirements of Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”). Pursuant to Rule 206(4)-7, investment advisers registered with the SEC are required to establish and maintain written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act and the rules under the Investment Adviser Act. Most state securities regulations have similar requirements and many state registered investment advisers also have trouble complying with these requirements.
A Refresher on the Requirements for Investment Advisers’ Written Policies and Procedures
September 25, 2013
Rule 206(4)–7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) became effective in February of 2004, yet for many investment advisers this continues to be a common area where regulatory deficiencies are found. Under Rule 206(4)-7, 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. While Rule 206(4)-7 does not detail specific items that investment advisers must include in their policies and procedures, the final rule release indicates that investment advisers are required to “consider their fiduciary and regulatory obligations under the [Investment] Advisers Act and to formalize policies and procedures to address them.” Most state securities regulations have similar requirements for state registered investment advisers; however, every registered investment adviser must familiarize itself with the specific regulatory requirements of its governing regulatory authority.
Developing and Implementing an Effective Customized Compliance Programs
September 19, 2013
RIA Compliance Consultants is hosting a webinar during which we will provide an overview of the requirement for an investment adviser to develop written supervisory policies and procedures in accordance with Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”). Under this rule U.S. Securities and Exchange Commission (“SEC”) registered investment advisers 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 Act. Most state securities regulations have similar requirements. During this webinar, RIA Compliance Consultants will:
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:
Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act) requires registered investment advisers to have in place written supervisory policies and procedures. Although the rule does not specifically indicate the areas that must be addressed in an investment adviser’s written supervisory policies and procedures, the final rule release indicated some issues that should be addressed in all investment advisers’ written supervisory policies and procedures to the extent they are relevant to the investment adviser; one of these issues is business continuity plans. As a fiduciary, an investment adviser has a responsibility to take the appropriate steps to protect the clients’ interests from risks resulting from the investment adviser’s inability to provide advisory services due to a disruption in business, like a natural disaster; therefore, all investment advisers should have a business continuity and disaster recovery plan. The business continuity and disaster recovery plan should provide guidance regarding the steps and actions that should be taken in the event of an unanticipated interruption of normal business operations. When developing a plan specific to the advisory firm, each investment adviser is encouraged to consider all of the firm’s advisory services and functions, consider any possible significant business disruptions that may occur, and determine a plan of action for each of these potential disruptions.
Registered Investment Adviser Recordkeeping Requirements
August 28, 2013
Rule 204-2 (the “Books and Records Rule”) under the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) to make and keep true, accurate, and current certain books and records relating to its investment advisory business. Most books and records requirements for state registered investment advisers are the same as or similar to the SEC requirements, but each investment adviser needs to make sure that it is familiar with the requirements of the appropriate governing authority. Generally, investment advisers will be required to maintain and preserve most books and records in an easily accessible location for five years from the end of the fiscal year during which the last entry was made on the record or, in the case or marketing pieces or other forms of communications, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated the document. The most recent two years of the required books and records must be maintained in an appropriate office location of the investment adviser. Information must be provided on the Form ADV Part 1 if any of the investment adviser’s books and records are kept in a location other than the investment adviser’s principal office location.
Understanding Activities not Commonly Recognized as Custody
August 06, 2013
On March 4, 2013, the U.S. Securities and Exchange Commission (“SEC”), by the Office of Compliance Inspections and Examinations issued a risk alert that discusses deficiencies involving investment advisers and custody. As stated in the risk alert, “One of the most critical rules under the Investment Advisers Act of 1940 is the custody rule, which is designed to protect advisory clients from the misuse or misappropriation of their funds and securities. Yet, the SEC’s National Examination Program (“NEP”) has observed widespread and varied non-compliance with elements of the custody rule.”
In the final rule release for Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), which requires investment advisers registered with the Securities and Exchange Commission (“SEC”) to adopt and implement written policies and procedures, the SEC indicated that when designing investment advisory policies and procedures each investment adviser “should first identify conflicts and other compliance factors creating risk exposure for the firm and its clients in light of the firm’s particular operations and then design policies and procedures that address those risks.” This process of an investment adviser identifying these risks is commonly referred to as a risk assessment. As RIA Compliance Consultants previously discussed, a risk assessment should serve as a mechanism for an investment adviser to identify its unique set of risks and evaluate what risks are present and how such risks affect the investment adviser and its business operations. A risk assessment should be a critical step used when developing strong written policies and procedures.
