By Cory Roberson, Principal at RIA Review and RIA Consults
Going into 2018,
we wanted to send a reminder to firms for their annual compliance obligations. Last year, the SEC Office of Compliance
Inspections and Examinations (OCIE) issued a risk alert titled The
Five Most Frequent Compliance Topics as identified by its examinations
of investment advisers.
Link –https://www.sec.gov/ocie/Article/risk-alert-5-most-frequent-ia-compliance-topics.pdf
Link –https://www.sec.gov/ocie/Article/risk-alert-5-most-frequent-ia-compliance-topics.pdf
Five most common issues include:
1.
Compliance Rule/Annual Review (Rule 206(4)-7) or similar state rules:
What to check?
Firms should
customize Compliance manuals to the firm’s business practices.
Examples of
customization include specifying:
Investment strategies, all types of clients;
Firm trading procedures;
Valuation procedures (sources of data, fair value, illiquid securities); and
All advisory fees.
Investment strategies, all types of clients;
Firm trading procedures;
Valuation procedures (sources of data, fair value, illiquid securities); and
All advisory fees.
Firms should
perform Annual (or periodic)
internal reviews.
Firm should
update its Compliance manuals.
2. Regulatory Filings (Rule 204-1) or
similar state rules:
What to check?
Firms should
review disclosures on Form ADV Part 1A, 2A, and/or 2B for accuracy.
Examples of
disclosures include:
Reporting custody
Regulatory assets under management,
Disciplinary history,
Types of clients and
Conflicts.
Reporting custody
Regulatory assets under management,
Disciplinary history,
Types of clients and
Conflicts.
Firms should update their Form ADV Part
1, 2A, and/or 2B when certain information becomes inaccurate and within 30 days of material
change.
Firms should file
their annual updating amendments within 90 days of firm’s fiscal year end (typically March 31st
for firms that use calendar based FYE dates).
Firms should
check their Form PF filings for accuracy (for private equity
or venture capital advisors).
Firms should
check their Form D filings for accuracy (for private funds,
hedge funds, Reg. D exemption offerings).
3. Custody (Rule 206(4)–2):
What to check?
Firms should
detect and review procedures to adhere to Custody Rule.
Firms should
review their custody procedures to determine if online access to client
accounts (and can move/withdraw funds) is available.
Firms should
review their custody procedures to determine if online access to client
usernames and passwords is available.
Firms should
review their custody procedures to determine if surprise examinations are: (1)
conducted by an independent accounting firm and (2) include all client accounts
for which the firm has custody.
Firms should
review their custody procedures to determine if power of attorney (the ability
to move, withdraw, or write checks with client funds) is available.
4. Code of Ethics (Rule 204(A)-1):
What to check?
Firms should
establish a code of ethics provision (standards of conduct) for all supervised persons.
Firms should
require all supervised persons to report personal securities transactions to
CCO or principal.
Firms should
require pre-approval for IPO’s, private placements (Reg. D offerings) and ICO (cryptocurrency)
offerings
Firms should
identify all access persons for the firm (people with access to non-public
information).
Firms should
specify collection/review of holdings report or personal securities
transactions in procedures.
Firms should
ensure submission of transactions reports.
Firms should add
description/disclosures of Code of Ethics in the Form ADV.
5. Books and Records - (Rule 204-2):
What to check?
Firms should retain
all required records for a minimum of five years. Examples include: trade
records, advisory agreements and general ledgers.
Firms should
maintain accurate and updated books and records.
Firms should keep
consistent recordkeeping procedures.
Applies to: SEC and State
Registrants
_____________________________________________________________________________
Compliance and Business Management
FIN Compliance (FINCompliance.io) is a
consortium of compliance services including: RIA Consults-Roberson Consults
Group, a compliance consulting firm, RIA Review, a compliance-management
software tool (SaaS), B-D Review, a RIA/Broker-Dealer compliance management
software tool, and FINLancer is a business
management portal featuring: E-signature tools; Invoicing integration,
Vendor Directory, continuity directory*, business client document portal, and
more (available by Q3 2019). Access all services
on one site: FINCompliance.io.
Impact
FIN Missions (FINmissions.com) provides business support group
sessions for other entrepreneurs. In addition, Cory has volunteered
for more than fifteen youth programs in locations such as like S. Korea, China,
S. Africa, Thailand, and India.
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