Why Should a Big Hedge Fund Use a Compliance Consultant?

I recently attended a large hedge fund industry conference focused on legal and compliance. The attendees were at the top in their field. Many were general counsels, chief compliance officers and chief operating officers of the largest hedge funds in the country. They all gathered to hear news and updates regarding legal and compliance issues that would affect their hedge fund business directly from the top regulators that create and enforce the rules governing hedge fund management in the US. Speakers included the top officials from the SEC, both past chairpersons, as well as current heads of various SEC divisions, the US Attorney, DOJ and FBI officials.

half said no – and a good percentage of the other half said only for the occasional mock SEC audit. As a former in-house general counsel and chief compliance officer of a fund-of-funds manager, I could not fathom successfully fulfilling the requirements of my job without an essential tool in my toolbox: the outside compliance consultant. Why? The primary reason is simple: resources. When your head is down and you are doing your job on a day-to-day basis, it is very difficult – practically impossible – to stay up to date with regulatory developments, and perhaps more importantly, business best practices.

Time is Money …

All of us have limited resources in terms of time. In a nutshell, the outside compliance consultant has their ear to the ground on a full-time basis. It is his or her job to be aware of the latest regulatory developments while an in-house person focuses on the day-to-day challenges of their firm’s business. An outside compliance consultant also has the advantage of insight into how a range of firms, often a large segment of the market of peers and competitors, implement best practices. Even finding the time to attend an industry conference can be a challenge. For every in-house counsel or compliance officer that finds the time to attend, there are dozens more who may not be able to break away from their offices. The outside compliance consultant can fill in the blanks for those who cannot make it themselves, and offer help by filling in knowledge gaps. In effect, it’s almost like being in two places at once.

The second reason is efficiency. I cannot count how many times during my in-house practice that I needed to find a template for a new policy required to adapt to a change to our business activity. Or sometimes I needed to know the industry best practice for mitigating a specific conflict of interest that arose. Rather than trying to Google the right answer or attempting to guess which of my peers might have had a similar experience, I reached out to my outside compliance consultant. If they did not know the answer, they were able to poll his or her fellow consultants. The collective knowledge and the speediness of the response was invaluable.

Running the cost-benefit analysis for my firm, it was absolutely worth engaging an outside compliance consultant on an annual basis for these reasons alone. But an additional reason was to handle one-off projects or conduct ongoing regular compliance testing that in-house staff did not have the bandwidth to complete. Without an outside compliance consultant, certain projects were constantly “back-burnered.” Using a compliance consultant to supplement our full-time staff permitted my firm to clear out the backlog of compliance projects that needed to be completed.

But Quality Matters…

Not all compliance consultants are created equal. It is not enough to have an outside compliance consultant that knows the rules and that can run down a checklist. A quality consultant should get to know your business and gain a real understanding of its business risks as well as how your compliance program is designed to mitigate those risks.

A compliance consultant should work with you over the long haul (beware firms that have high turnover) and become an ongoing advisor. He or she should understand your business (and be able to understand what it is like to walk in your shoes) so that the information they provide to you is customized and relevant. No one needs additional “busy work” or to generate more paper solely to check a box.

The recommendations a compliance consultant makes and the value they add to your hedge fund business should result in less work for you and your staff, implementation of industry best practices and overall mitigated risk to your firm.

Latest Content

DOL Fiduciary Rule Transition Period Extension to 2019 Requested

The Secretary of Labor, Alexander Acosta, made a court filing on August 9 requesting the Transition Period and Delay of Applicability for the Department of Labor Fiduciary Rule be extended from January 1, 2018 to July 1, 2019. This court filing included extending the deadlines for the following Prohibited Contract Exemptions: Best Interest Contract Exemption … Continued

SEC Cyber Sweep Highlights Areas In Need of Improvement

The results of the SEC’s second cybersecurity sweep examinations are in, and they paint a picture of an industry that has come to grips with the need to address cybersecurity risk, but where the canvas is incomplete in many respects.

Colorado Joins New York in Mandating Cybersecurity Controls for Financial Institutions

On the heels of the recently adopted New York State Department of Financial Services Cybersecurity Regulation (23 NYCRR 500), Colorado has followed suit with its own set of protections. The Colorado Division of Securities has issued cybersecurity regulations applicable to broker dealers and investment advisers registered with the state, which are codified in Sections 51-4.8 … Continued

Form ADV: What You Need to Know Now to Prepare for October

October 2017 new Form ADV amendments continue the big data trend. Form ADV continues to expand ever more rapidly as data mining and handling techniques by regulators allow for the utilization of Form ADV for risk measurement. Ease the burden of answering over 100 separate questions (plus scores more for each private fund) through this … Continued

Electronic Messaging Exams: Looking Beyond Emails

The SEC is conducting “electronic messaging” examinations -- mainly in the New York region -- which include all forms of written communications related to an Adviser's business.

Mailing List

Subscribe to the Ascendant Compliance email list for the latest compliance resources, conferences, ComplianceCasts™, and more.

Loading form...

Contact Us

Ascendant works together with clients to identify and assess critical needs through customized plans. If you need assistance with compliance functions, regulatory services, cybersecurity or technology tools, we’d love to speak with you.