The Office of Compliance Inspections and Examinations ("OCIE") identified compliance issues for investment advisers related to Rule 206(4)-7 (the "Compliance Rule") under the Investment Advisers Act.

In a Risk Alert, OCIE outlined the following common compliance deficiencies:

  • Inadequate Compliance Resources: Advisers did not devote sufficient resources to their compliance programs. OCIE observed (i) Chief Compliance Officers ("CCOs") not devoting sufficient time to fulfilling their responsibilities, (ii) a lack of adequate training for compliance staff, and (iii) advisers that had grown in size but had not hired additional compliance staff;
  • Insufficient Transparency: Advisers restricted the authority of their CCOs by withholding critical compliance information and/or limiting the CCOs' interactions with senior management regarding potential compliance issues;
  • Annual Review Deficiencies: Advisers were unable to produce evidence of annual reviews that they claimed to conduct and failed to identify key risk areas in their annual reviews;
  • Failure to Implement Written Policies: Advisers did not implement compliance programs required by written policies or procedures;
  • Maintaining Accurate and Complete Information in Policies and Procedures: Compliance policies, including off-the-shelf policies, contained outdated or inaccurate information about the adviser; and
  • Poorly Designed Written Policies: Advisers failed to establish or implement appropriate policies and procedures relating to portfolio management, marketing, trading practices, disclosures, advisory fees and valuations, and safeguards for client privacy.

Primary Sources

  1. SEC OCIE Risk Alert: OCIE Observations - Investment Adviser Compliance Programs

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.