SEC Risk Alert: Annual Compliance Reviews
On September 14, the SEC’s Division of Examinations issued a Risk Alert focused on annual compliance reviews under Advisers Act Rule 206(4)-7. The rule requires SEC-registered advisers to review their policies and procedures at least annually, assessing both their adequacy and the effectiveness of their implementation. Reviews should also consider compliance issues from the prior year, changes in the adviser’s business, and relevant regulatory developments.
Five Recurring Examination Issues
- Reviews not completed annually, or delayed because of personnel or operational changes.
- Incomplete procedures describing how the annual review should be performed.
- Reviews that did not follow the firm’s own written procedures.
- Inadequate documentation and retention of supporting workpapers.
- Corrective actions that were identified but never completed or validated.
The SEC also observed annual reviews that failed to identify gaps between written policies and actual practices involving fees, proxy voting, custody, marketing, Form CRS, delegated functions, and known compliance issues.
KBC Perspective
The review may be led by the CCO, but this risk alert makes it clear that the obligation belongs to the adviser. CCO turnover, rapid growth, acquisitions, and other operational changes do not eliminate the requirement, which poses real practical challenges. A useful framework is:
Key Bridge Compliance will host a webinar discussing the SEC’s observations and their practical implications.
Takeaways
- Complete the review at least annually. Make sure written procedures reflect the process actually used.
- Test whether policies still match the firm’s business.
- Retain supporting workpapers.
- Track corrective actions through documented completion.