Coast to coast
compliance
To help firms maintain competent, compliant, and up-to-date business practices, the SEC set forth Rule 206(4)-7 in the Advisers Act, requiring investment advisers to annually review their written policies and procedures to determine their adequacy and the effectiveness of their implementation. There are many things the annual review should consider, starting with reviewing the previous year’s review, any compliance matters that arose, and any recent deficiency letters. Next, a review of any changes in the business activities of the investment adviser or its affiliates is important to ensure reports of client relationships are accurate. Furthermore, with the constantly changing regulatory environment, an industry expert is suggested to keep your firm informed and compliant with any changes in the Advisers Act or applicable regulations that might suggest a need to revise the investment adviser’s policies or procedures.
In addition to the above, other areas are important to consider while having a comprehensive annual review. Advertising and marketing materials need to be reviewed, as well as client agreements and disclosures. Portfolio management processes and trading procedures, any regulatory filings and registrations, and reviews of custody and safeguarding of clients’ assets are also necessary parts of your firm that should be evaluated for adequacy and tested for effectiveness during an annual review.
Often, SEC examinations observe inadequacy in documentation or failure to complete an annual review which can result in examinations, fines, and penalties. Even firm’s not SEC-registered can benefit from annual reviews giving clients and investors confidence in safe business practices and the protection of assets. Looking at your firm’s annual review as not only checking off the box for regulatory compliance, but instead as an important process that allows firms to assess the effectiveness of their policies and procedures and ensure risks and conflicts are adequately controlled and addressed, is a start to fostering a more wholesome culture of compliance in your firm.
Finally, an annual review is a best practice for other types of investment advisers (state-registered, private funds, etc.) and is a requirement for FINRA-regulated firms, such as broker-dealers. FINRA Rule 3120 requires FINRA-regulated firms to annually prepare a report detailing and summarizing their supervisory control system, noting any relevant findings, and any amended supervisory processes or procedures that resulted from such review.
Coast to Coast Compliance can conduct a comprehensive annual review, or other targeted compliance testing, to improve upon your compliance program and enhance your firm's culture of compliance.
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