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The SEC’s 5 biggest peeves

Last week, the Securities and Exchange Commission’s (SEC) Office of Compliance Inspections and Examinations (OCIE) highlighted its five biggest noncompliance peeves which result in deficiency letters.


They include:

  • Rule 206(4)-7 (the “compliance rule”);
  • Required regulatory filings;
  • Rule 206(4)-2 (the “custody rule”); and
  • Rule 204A-1 (the “code of ethics rule”).
  • Rule 204-2 under the Advisers Act (aka the “Books and Records Rule”);

And the noncompliance winner is…

Want to know what upsets the regulators most?

Failure to adopt and implement written policies and procedures (WSPs). To quote the SEC’s most recent Risk Alert (emphasis added):

The Compliance Rule makes it unlawful for an adviser to provide investment advice to clients unless the adviser:

  • adopts and implements written policies and procedures reasonably designed to prevent violations, by the adviser and its supervised persons, of the Advisers Act and the rules that the Commission has adopted under the Advisers Act;
  • reviews, no less frequently than annually, the adequacy of its policies and procedures and the effectiveness of their implementation; and
  • designates a chief compliance officer responsible for administering the compliance policies and procedures that the adviser

What does WSP noncompliance look like?

The SEC highlighted four compliance common gaps:

Your compliance manuals don’t reasonably reflect an adviser’s business The SEC wants you to develop and circulate WSPs that take into account your advisor’s specifics, like:

  • investment strategies;
  • types of clients; trading practices;
  • valuation procedures;
  • and advisory

Plus, cookie-cutter WSP solutions won’t cut it. The regulators prefer to see custom packages — not “off-the-shelf” compliance manuals that might not reflect your adviser’s individual business practices.

  • Annual reviews that never happen or fail to address your adviser’s policies and Worse yet, the regulators get even crankier when you do not address or correct the problems they identify in their annual reviews.
  • Your advisers don’t follow compliance policies and The regulators frown on advisers who do not do their homework, like following their compliance policies and procedures. This includes advisers not perform the internal practice reviews required by their compliance manual, or advisers that do not adhere to delineated marketing practices, or expenses, or employee behaviors.
  • Out-of-date compliance The regulators hate to find compliance manuals addressing issues on, for example, investment strategies no longer pursued, or identifying personnel no longer associated with the adviser, or even those with stale information about the firm.

The regulatory alphabet is still watching

The SEC is not the only regulatory body keeping an eye out for financial errors and omissions (or outright wrongdoing!). In last week’s blog post, we discussed the 2017 targets Financial Industry Regulatory Association (FINRA) was eying, and one of their priorities was…WSPs.

Be prepared…

But don’t overpay! Noncompliance can be costly — we talk about fines and jail sentences in this blog all the time. But, compliance doesn’t have to break the bank. Patrina is offering a 90-day, FREE trial of its comprehensive 8-module compliance solution. And that’s just the tip of our iceberg!

Let’s talk (212-233-1155). Ask about Patrina’s comprehensive compliance solutions and compliant data capture, file storage, and records archiving specifically designed for the financial services community.

Let’s talk.