You will often hear regulators and compliance professionals speak about the need for investment advisers and broker dealers to establish a culture of compliance within their firms. Instituting this type of atmosphere requires more than simply creating a compliance manual and code of ethics. Establishing a culture of compliance also means dedicating knowledgeable staff and sufficient resources to insure that your firm properly implements your compliance program. Last August, we sited a survey by Cipperman Compliance Services which indicated that the compliance function in the surveyed firms was underfunded and understaffed.
The survey’s finding came to fruition for one firm on June 23, 2015, when the Securities and Exchange Commission (SEC) settled an administrative proceeding against an investment adviser for, among other things, failure to complete their annual compliance review and failure to implement and enforce provisions of its policies and procedures and code of ethics. The SEC indicated that these failures were caused substantially because the adviser’s President “dedicated insufficient resources to compliance, which contributed substantially” to the failures of their compliance program. Not only did senior management of the adviser hire a Chief Compliance Officer with limited experience, they failed to provide the CCO with adequate guidance regarding his duties and required him to have various additional job functions ranging from research analyst to CFO. The CCO realized that he needed help to fulfill his compliance responsibilities and made multiple requests for help to senior management. In response, they expressed that their primary concern was serving their clients and did not provide the CCO with any additional resources. Ultimately, an SEC exam found that the advisory firm failed to complete its annual compliance review for two consecutive years and had multiple code of ethics violations related to its trading program. The SEC’s sanctions included monetary fines totaling $285,000 and the suspension of its President from acting in a supervisory role for a twelve month period.
While serving your clients may be your primary concern, serving a suspension because you failed to provide resources to your compliance program could hinder your ability to do so. It is also completely unnecessary. As noted by the SEC, one of the remedial acts undertaken by the adviser was eventually retaining a compliance consultant to help monitor their compliance program reviews and act as a compliance resource to the firm’s employees. Should you find that your CCO is stretched thin or fear that your compliance program is threatening to jeopardize your business, Red Oak is here to help you enhance your program and aid in its implementation.
Please click here to read the full SEC order.
About Red Oak Compliance Solutions
Red Oak Compliance Solutions is a leading provider of intelligent compliance software, offering a range of AI-powered solutions designed to help firms of all sizes successfully navigate the increasingly complex regulatory landscape. Our suite of 17(a)-4/WORM compliant features offer risk minimization, cost reduction, and process optimization capabilities with features that are designed to evolve with our client’s needs. Our flagship advertising review software enables firms to deliver compliant content to the market with confidence, faster. Our Disclosure Management and Intelligence solution simplifies the management of disclosures, while our Registration Management solution automates and streamlines the licensing and registration process, further enhancing your internal processes.