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Are there any specific requirements relating to violations of a SEC registered investment adviser’s code of ethics?

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Pursuant to SEC Rule 204A-1, a SEC registered investment adviser’s code of ethics must require prompt internal reporting of any violations to the investment adviser’s code of ethics. Violations must be reported to the investment adviser’s chief compliance officer. However, an investment adviser’s code of ethics may require that violations be reported to another designated party if the designated party is then required to report it to the chief compliance officer. In order to promote the prompt reporting of code of ethics violations, an investment adviser must create an environment that encourages and protects any supervised persons that report a violation. An investment adviser must make sure that a supervised person feels safe and free to report violations without fear of retaliation. While SEC Rule 204A-1 does not require that the investment adviser impose certain fines or penalties, it is important that supervised persons of the investment adviser understand the emphasis that the investment adviser places on acting in an ethical manner and, therefore, many investment advisers choose to include some form of reference to disciplinary actions that may be taken if a violation occurs. An investment adviser must maintain a record of all violations of the code of ethics and the actions taken as a result of the violation.

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