Rule 206(4)-7 of the Advisers Act and Rule 38a-1 of the Investment Company Act require an Investment Adviser and a Fund, respectively, to review policies and procedures annually to determine their adequacy and the effectiveness of their implementation.
The SEC highlights specific focus areas including portfolio management processes, trading practices, proprietary trading, disclosure accuracy, and records maintenance, among other things.
In 2006, then-OCIE Associate Director for Examinations Gene Gohlke listed nine questions that SEC examiners consider in scrutinizing an annual review. Those questions still resonate today and can inform your process.
- Who conducted the review?
- What was reviewed?
- When was it conducted?
- How was it conducted?
- What were the findings from the review work?
- What recommendations were made?
- What is the current status of implement recommendations?
- What documentation was created/retained to reflect the work done?
- What was the involvement of senior management in the review?
To be blunt, the process should be a team effort, with different departments “owning” their subject matters. Doing so allows the CCO to keep compliance on the radar for firm employees and sets the “culture of compliance” that the SEC looks for. It cannot be stressed enough that involving management and employees outside the compliance department sets a tone firm-wide.
In our recent ComplianceCast, “Planning the Annual Review and Reporting,” consultants Allison Fraser and David Lourie go in-depth on the complex topic.
Learning objectives include:
- Planning and Documentation
- Testing the Adequacy and Effectiveness of Policies and Procedures
- Reporting Annual Review Findings
- Responding to Issues Identified by the Annual Review
- Common Deficiencies
To download this ComplianceCast presentation, please fill out our request form by clicking here.