Over the past year, we have written several articles warning investment advisers to prepare for regulatory examinations as both the U.S. Securities and Exchange Commission (“SEC”) and state securities regulators have indicated that investment advisers should expect to see an increase in the number of exams being conducted. RIA Compliance Consultants is seeing the effects of more frequent investment adviser exams. Lately, we have experienced an increase in the number of calls from clients and prospective clients because they have recently been trough an SEC or state investment adviser exam or have been notified by an SEC or state securities regulator that their investment advisers will be audited in the near future. One of the most common inquiries we are receiving is regarding what we can do to assist with preparing or updating the investment adviser’s written policies and procedures. Too often, we are hearing that, although the investment adviser has been registered for some time, the investment adviser does not have customized written supervisory policies and procedures or has not properly maintained current and customized policies and procedures.
Category Archives: Written Policies and Procedures
Investment Advisers Should Have Compliance Policies and Procedures for the Use of Social Media
June 12, 2013
The use of social media and networking websites is becoming an increasingly common communication and marketing tool. If an investment adviser permits the use of social media and networking websites by its supervised persons, the investment adviser must have in place strong compliance policies and procedures that clearly define acceptable use and address key areas such as supervision and record retention.
SEC Releases New Identity Theft Red Flag Rules that Will Affect Certain Registered Investment Advisers
April 16, 2013
As information technology and electronic communication continue to expand, identity theft poses an increasingly common threat to individuals. On April 10, 2013, the U.S. Securities and Exchange Commission (“SEC”) voted unanimously to adopt rules requiring broker-dealers, mutual funds, investment advisers, and certain other entities regulated by the SEC to adopt programs to detect red flags and prevent identity theft. These rules, jointly adopted with the Commodity Futures Trading Commission (“CFTC”), were adopted in accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), which amended the Fair Credit Reporting Act of 1970 (“FCRA”) to add the SEC to the list of federal agencies that must jointly adopt and individually enforce identity theft red flags rules.
According to the U.S. Securities and Exchange Commission’s (“SEC”) website, “Insider trading continues to be a high priority area for the SEC’s enforcement program. The SEC brought 58 insider trading actions in FY 2012 against 131 individuals and entities. Over the last three years, the SEC has filed more insider trading actions (168 total) than in any three-year period in the agency’s history.” Improper use of inside information when conducting any securities transaction is a serious violation of securities law. Section 204A under the Investment Advisers Act of 1940 (“Investment Advisers Act”) requires SEC registered investment advisers to “…establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of such investment adviser’s business, to prevent the misuse…of material, nonpublic information by such investment adviser or person associated with such investment adviser.” Most state securities regulators have the same requirements. Investment advisers should note that this requirement is much broader than the SEC’s personal securities transaction reporting and supervision requirement under Rule 204A-1 (“Code of Ethics Rule”) of the Investment Advisers Act.
By now, a registered investment adviser with a December fiscal year end should have filed its Form ADV annual updating amendment that is due each year within 90 days of the investment adviser’s fiscal year end. An investment adviser needs to understand that failure to update the Form ADV, as required by the Form ADV General Instructions, is a violation of U.S. Securities and Exchange Commission (“SEC”) rules and similar state rules that could lead to an investment adviser’s registration being revoked. A registered investment adviser with a fiscal year end other than December must make sure to file its annual updating amendment within 90 days of the investment adviser firm’s fiscal year end.
Risk Alert Issued by SEC Identifies Significant Deficiencies Involving Failure of Investment Advisers to Comply with the Custody Rule
March 19, 2013
In a Risk Alert issued March 4, 2013 by the U.S. Securities and Exchange Commission’s (“SEC”) Office of Compliance Inspections and Examinations (“OCIE”), it was revealed that “the SEC’s National Examination Program (“NEP”) has observed widespread and varied non-compliance with elements of the custody rule.” Rule 206(4)-2 under the Investment Advisers Act of 1940 (“Investment Advisers Act”), states that an investment adviser has custody of client assets if it or its related person holds, directly or indirectly, client funds or securities or has any authority to obtain possession of them. The Risk Alert indicated that approximately one-third (over 140) of the recent examinations reviewed by the SEC’s National Examination Program staff included custody related issues. The Risk Alert was issued by the SEC’s Office of Compliance Inspections and Examinations to encourage registered investment advisers to review their policies and procedures and examine their practices related to the deficiencies noted in the Risk Alert to ensure that investment advisers are aware of “…their responsibilities under the custody rule to protect client assets.”
Has Your Investment Adviser Updated its Written Policies and Procedures?
February 28, 2013
With the new year upon us, SEC registered investment advisers and most state registered investment advisers are reminded that in addition to adopting and implementing written policies and procedures, registered investment advisers are also required to review policies and procedures at least annually for the adequacy and effectiveness of the implementation of such policies and procedures. When conducting a review, investment advisers should consider items in your written policies and procedures that may need to be added, revised, or updated due to exam deficiencies, violations that have occurred in relation to the existing policies and procedures, changes in your registered investment adviser’s business model or regulatory changes. Examples may include changes in your investment adviser’s registration requirements or changes in policies concerning the use of social medial, political contributions or supervising branch office locations.
An investment adviser is required to prepare and submit a completed Form ADV as part of the initial registration process. In addition to the review by the U.S. Securities and Exchange Commission (“SEC”) or state securities regulator(s) for purposes of determining whether to approve or deny an application for investment adviser registration, the Form ADV Part 2 is also used as the investment adviser’s disclosure document which is required to be provided to all investment advisory clients. The Form ADV must provide accurate, current, and consistent disclosures. The general instructions for the Form ADV provides the investment adviser with details regarding the frequency at which the investment adviser is required to update certain information in the Form ADV. At a minimum, an SEC registered investment adviser must file a Form ADV annual updating amendment at least annually within 90-days of the investment adviser’s fiscal year end. Most state securities regulators have similar requirements for a state registered investment adviser.
20% Discount on Self-Customized Written Supervisory Procedures and Code of Ethics Manual
December 28, 2012
RIA Compliance Consultants is offering a 20% discount now until January 04, 2013, on our self-customized written supervisory procedures and code of ethics manual prepared through RIA Express – Compliance Manual Drafter. Please use the code: RIA-Express2012 at checkout to receive this discount.
RIA Compliance Consultants now offers an electronic compliance manual authorizing wizard, RIA Express – Compliance Manual Drafter, to allow your registered investment advisor to create a regulator specific, customized written supervisory procedures and code of ethics manual on your own. Even if your registered investment advisor already has in place a written supervisory procedures and code of ethics manual, our electronic drafter can be a great tool to strengthen your current procedures.
