Category: Alerts

Alaric Compliance Alert: SEC Risk Alert Lists Top Five Compliance Deficiency Areas for RIAs

The Securities and Exchange Commission (“SEC”) has issued a list of the five topics that its Office of Compliance Inspections and Examinations (“OCIE”) most frequently identified in deficiency letters sent to SEC-registered investment advisers (“RIAs”).1 These included deficiencies in:

  • The Compliance Rule
  • Regulatory Filings
  • The Custody Rule
  • Code of Ethics
  • Books and Records

Breaches of the Compliance Rule topped the list of topics in the SEC’s Feb. 7 Risk Alert. The Compliance Rule requires RIAs to adopt and implement written policies and procedures (“P&Ps”) reasonably designed to prevent violations of securities laws; to review the adequacy of those P&Ps no less than annually; and to designate a Chief Compliance Officer (“CCO”) responsible for administering those P&Ps.

In particular, the regulator pointed out four of the most commonly encountered deficiencies or weaknesses vis-à-vis the Compliance Rule. These include:

  • Instead of tailoring compliance manuals to a registrant’s business, some firms are relying on off-the-shelf manuals that do not reflect the adviser’s business, such as its unique investment strategies, client profile, trading practices, and fees and valuation procedures.
  • Outdated compliance manuals fail to accurately reflect the adviser’s current business, including its policies and practices, investment strategy and/or persons affiliated with the firm.
  • Firms are failing to conduct compliance reviews at least annually, and/or their reviews do not address the adequacy of their P&Ps. Regulators are not only looking for firms to test their compliance programs at least annually, they also want confirmation that those P&Ps are effective.
  • Some firms are simply not following their P&Ps as required by the Compliance Rule, including breaching requirements related to marketing, expenses or employee behavior.

Armed with this insight, firms can start working to identify potentially problematic areas by updating their risk assessment, completing a compliance program gap analysis that includes a review of their P&Ps, and beginning the annual review process. Registrants can also seek the help of an experienced compliance consultant to assess and address deficiencies that regulators will be looking for should their firm be examined.

To learn more about how Alaric can help, or for answers to related compliance questions, please email info@alariccompliance.com or call (888) 243-5241.


1 https://www.sec.gov/ocie/Article/risk-alert-5-most-frequent-ia-compliance-topics.pdf

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