Coinciding with the SEC’s annual Compliance Outreach Program National Seminar, on November 19 the Office of Compliance Inspections & Examinations (OCIE) released a risk alert titled OCIE Observations: Investment Adviser Compliance Programs. This is the first risk alert in five years specific to Chief Compliance Officers (CCO), and comes at a time when compliance programs are uniquely stressed due to COVID-19.
The SEC has repeatedly emphasized that they are not scaling back examinations despite the pandemic. OCIE is performing exams with the expectation that advisers should have been prepared and adapted accordingly to such an event.
The Risk Alert points to several key issues of concern:
1) Inadequate compliance resources, including CCOs who perform more than one function internally, and insufficient policy and procedure implementation and tailoring due to failure to adapt to changes in firm size and complexity.
2) Insufficient authority of CCOs.
3) Annual review deficiencies, such as failure to maintain proof of the reviews and inadequate comprehensiveness.
4) Failure to maintain or establish reasonably designed written policies and procedures.
5) Failure to implement actions required by written policies and procedures.
6) Failure to maintain accurate and complete information in policies and procedures.
Even in normal circumstances, CCOs and compliance programs can struggle to meet their mandate. The COVID-19 era is a precarious time for CCOs who must now:
1) Educate themselves and the firm on how to ensure business continuity and protect client information while working remotely and with potential staffing disruptions; and
2) Review compliance policies and procedures to ensure alignment with an effective pandemic response, adopt and implement necessary changes, and train employees on updates.
Key Bridge Compliance, LLC is kicking off a blog series that will guide advisers through each of the risks identified in the alert in light of the pandemic-related compliance complications. Our first in the series will be published next week.