Once a registered investment adviser has developed written supervisory and compliance policies and procedures, what happens?

The first step that should be taken after developing written supervisory and compliance policies and procedures is to provide all employees of the investment adviser with a copy or access to a copy. The investment adviser should require all investment adviser representatives (“IAR”) and employees to review the supervisory and compliance policies and procedures and have each investment adviser representative and employee sign an acknowledgement indicating that he or she has read this compliance manual, understands it and agrees to abide by the investment adviser’s written supervisory and compliance policies and procedures. (Although a signed acknowledgement is not a requirement, it is a good business practice.) A registered investment adviser should provide its investment adviser representatives and employees with on-going training of its supervisory and compliance policies and procedures. An investment adviser must also notify investment adviser representatives and employees when revisions are made to their policies and procedures and should require an acknowledgement on an annual basis.

An investment adviser and its supervised persons need to be aware that the compliance manual is a living document, and the compliance manual should not be treated as something that the investment adviser can assume is done and forget about by putting it in a drawer or on a shelf. At a minimum, an SEC registered investment adviser must conduct an annual assessment of its supervisory and compliance policies and procedures. This annual assessment must review the adequacy of the supervisory and compliance policies and procedures and the effectiveness of their implementation within the investment adviser. When conducting an assessment, an investment adviser should consider any violations, any regulatory deficiencies and any changes in the investment adviser’s business structures or manner in which business is conducted. An investment adviser must then review its supervisory and compliance policies and procedures to make any revisions to address these changes or areas of concern in order to prevent any future problems. Although SEC Rule 206(4)-7 only requires an annual assessment, a SEC registered investment adviser should consider reviewing its supervisory and compliance policies and procedures and making revisions or developing new supervisory and compliance policies and procedures any time a violation, deficiency or change occurs rather than waiting to do so annually.