Define a “Material” Compliance Event

posted in: Compliance | 0

The SEC Office of Compliance Inspections and Examinations encourages advisory firms to define what a material compliance event is for their organization. While there as many definitions as there are advisory firms, a common definition of a “Material Compliance Event” is “a breach of a securities rule or regulation, a willful violation of a Company policy or procedures, including the Code of Ethics, or another action by an employee or other Supervised Person that risks harm to a client or the Company’s reputation.”

Why include a definition of Material Compliance event (besides the obvious fact that OCIE encourages the practice)? Most compliance manuals have a section that discusses sanctions for non-compliance with the firm’s policies and procedures. Often these manuals refer to a breach of policies and procedures that result in a Material Compliance Event (or some such similar words). Unfortunately, few compliance manuals actually define what would constitute such an adverse event. Therefore, by adding this definition to your compliance manual, the firm lets both employees and SEC examiners know that some standard has been set for determining whether or not a breach has occurred.


Leave a Reply

Your email address will not be published.