Compliance Solutions for Investment Advisers

Top 4 Compliance Program Deficiencies

As stated in the recent SEC Risk Alert, the 4 most frequent compliance issues identified in examinations of investment advisers are as follows:

  1. Compliance manuals are not reasonably tailored to the adviser’s business practices. The staff noted that certain compliance programs did not take into account important individualized business practices such as the adviser’s particular investment strategies, types of clients, trading practices, valuation procedures and advisory fees. Moreover, examiners continue to observe that some advisers use “off-the-shelf” compliance manuals that have not been tailored to the adviser’s individual business practices.
  2. Annual reviews are not performed or did not address the adequacy of the adviser’s policies and procedures. The staff observed that certain advisers did not conduct annual reviews of their compliance policies and procedures, as required by the Compliance Rule. In addition, the staff identified advisers that conducted annual reviews that did not address the adequacy of the advisers’ policies and procedures and the effectiveness of their implementation. Staff also observed that advisers did not address or correct problems identified in their annual reviews.
  3. Adviser does not follow compliance policies and procedures. The staff observed that certain advisers appeared to not be following their compliance policies and procedures, as required by the Compliance Rule. Examples include advisers that do not perform certain internal reviews of their practices required by their compliance manual and advisers that do not adhere to certain practices relating to marketing, expenses or employee behavior required by their compliance manual.
  4. Compliance manuals are not current. The staff noted that certain compliance manuals contained information or policies that are no longer current, such as investment strategies that were no longer pursued or personnel no longer associated with the adviser and stale information about the firm.
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