Although many investment adviser firms desire to outsource the chief compliance officer role to an unaffiliated third-party independent contractor (“Outsourced CCO”), such an arrangement will be scrutinized and could be challenged by the securities regulator as a violation Rule 206(4)-7 or equivalent rule of the state securities regulator depending upon the facts and circumstances.
Category Archives: CCO
SEC Risk Alert – Investment Adviser Compliance Programs
December 17, 2020
On November 19th 2020, the Office of Compliance Inspections and Examinations (“OCIE”) of the U.S. Securities and Exchange Commission (“SEC”) released a Risk Alert about its assessment of the compliance practices of SEC-registered investment advisers with regard to SEC Rule 206(4)-7 (the “Compliance Rule”) under the Investment Advisers Act of 1940. In its Risk Alert, the SEC noted that Compliance Rule deficiencies are among the most common discovered by OCIE during SEC registered investment adviser examinations. Click here to read the SEC’s Risk Alert for Investment Adviser Compliance Programs.
National Compliance Officer Day – Not All Heroes Wear Capes
September 27, 2019
Yesterday was the fourth annual Compliance Officer Day, a day to recognize and appreciate the work done by compliance professionals. RIA Compliance Consultants recognizes the 24/7 role demanded of compliance officers and personnel. We would like to thank you for your tireless work at building ethical cultures and helping your colleagues do the right thing. In appreciation to your dedication to compliance, we are offering a 25% discount on all of our Sample Compliance Forms and Compliance Training Webinars. Click here to shop on our online store. The 25% discount will be applied automatically at checkout.
The Chief Compliance Officer serves an important role in an investment adviser firm’s business. A role that requires expertise, independent judgment, and dedication, an increasing number of investment adviser firms are choosing to outsource the Chief Compliance Officer position to third party compliance professionals. Despite the potential cost-savings, outsourcing this vital role is generally not a wise business strategy and will likely increase the firm’s risk of exam by the U.S. Securities and Exchange Commission (“SEC”) or affect the depth of inquiry an investment adviser firm is subject to once an exam has begun.
SEC Risk Alert-Outsourcing CCO
December 14, 2015
The Office of Compliance Inspections and Examinations (OCIE) of the U.S. Securities and Exchange Commission (SEC) recently issued a risk alert regarding outsourcing compliance activities to third parties. The SEC’s OCIE conducted nearly 20 examinations focusing on SEC-registered investment adviser firms that outsource the position of the Chief Compliance Officer (CCO) to third parties. The risk alert shares SEC staff’s observations and identifies areas of risk associated with an investment adviser firm outsourcing the role of CCO. This SEC Risk Alert comes on the heels of a new rule the SEC proposed in May of 2015, which would require investment advisers to disclose if they outsource the role of CCO. These two actions indicate that the SEC is seriously scrutinizing the effectiveness of an investment adviser firm’s outsourced CCO.
A Refresher on the Requirements for Investment Advisers’ Written Policies and Procedures
September 25, 2013
Rule 206(4)–7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) became effective in February of 2004, yet for many investment advisers this continues to be a common area where regulatory deficiencies are found. Under Rule 206(4)-7, investment advisers registered with the U.S. Securities and Exchange Commission (“SEC”) are required to adopt and implement written policies and procedures reasonably designed to prevent violations of the Investment Advisers Act. While Rule 206(4)-7 does not detail specific items that investment advisers must include in their policies and procedures, the final rule release indicates that investment advisers are required to “consider their fiduciary and regulatory obligations under the [Investment] Advisers Act and to formalize policies and procedures to address them.” Most state securities regulations have similar requirements for state registered investment advisers; however, every registered investment adviser must familiarize itself with the specific regulatory requirements of its governing regulatory authority.
Tips to Help an Investment Adviser Create a Culture of Compliance
February 19, 2013
For several years now, investment advisers have been hearing that they must create a “culture of compliance” throughout their firms. Understanding what a “culture of compliance” means is not always clear to many investment advisers. In a speech presented in October 2007 by Lori Richards, former Director of the Office of Compliance Inspections and Examinations for the U.S. Securities and Exchange Commission (“SEC”), she explained this concept in greater detail:
Qualifications of a Chief Compliance Officer
February 12, 2013
Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) to designate a chief compliance officer (“CCO”) to administer its compliance policies and procedures. There are no specific exam, continuing education, or industry experience requirements outlined under Rule 206(4)-7 for an SEC registered investment adviser’s CCO. However, the SEC’s final rule release for Rule 206(4)-7 states, “An [investment] adviser’s chief compliance officer should be competent and knowledgeable regarding the [Investment] Advisers Act and should be empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm. Thus, the compliance officer should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.”
Compliance Is Not Just the Responsibility of the Investment Adviser’s Chief Compliance Officer
February 06, 2013
One of the requirements of Rule 206(4)-7 under the Investment Advisers Act of 1940 (“Investment Advisers Act”) is that each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) is required to designate a chief compliance officer (“CCO”) to administer the investment adviser’s compliance policies and procedures. While the CCO has the primary responsibility for developing and enforcing appropriate policies and procedures for the investment adviser, this does not mean that the CCO has to be the sole party responsible for making sure that all compliance functions within the firm are carried out. The CCO can delegate duties and supervisory responsibilities related to the investment adviser’s ongoing compliance responsibilities.
According to Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Investment Advisers Act”), each investment adviser registered with the U.S. Securities and Exchange Commission (“SEC”) must adopt and implement written policies and procedures reasonably designed to prevent violation of the Investment Advisers Act and the rules that the SEC has adopted under the Investment Advisers Act. Rule 206(4)-7 also requires an SEC registered investment adviser to designate an individual to serve in the role as chief compliance officer (“CCO”). The investment adviser’s designated CCO will be responsible for administering the investment adviser’s compliance policies and procedures adopted pursuant to the requirements of Rule 206(4)-7.
