January 1, 2022

Key Points For A Successful Annual Compliance Program Review

SEC, RIA, Annual Compliance Program Review, FINRA, The Investment Advisers Act, Advisers Act, cyber security, policies and procedures, marketing materials, SEC Regulators, SEC Regulations, broker-dealers, investment advisers, private funds

SEC-Required Annual Compliance Program Reviews

SEC-registered investment advisers are required to annually review their written policies and procedures to determine their adequacy and the effectiveness of their implementation under Rule 206(4)-7 of the Advisers Act. This requirement was put in place to ensure that registered investment advisers take into consideration new regulations or changes in their business practices that may have impacted their policies and procedures. During regulatory examinations, the SEC often finds that investment advisers fall short in documenting their annual compliance program reviews or fail to complete an annual review at all, which can result in unwanted fines and penalties from the SEC.

An important consideration for investment advisers is their ability to demonstrate that an annual review was conducted. Even in years where an annual review was conducted but no material changes were made to policies and procedures, perhaps due to continued efficacy and relevance, steps must be taken to ensure the annual review is sufficiently documented.

Annual compliance reviews should be comprehensive, not only taking into consideration new regulations and changed business practices, but also client agreements and disclosures, advertising and marketing materials, regulatory filings and registrations, custody and safeguarding of client assets, business continuity and disaster recovery planning, cybersecurity, conflicts of interests, and more. The annual review should consider any compliance matters that arose during the previous year, any changes in the business activities of the investment adviser or its affiliates, and any changes in the Advisers Act or applicable regulations that might suggest a need to revise the firm’s policies or procedures.  

While annual compliance program reviews are a requirement for SEC-registered investment advisers (and FINRA-regulated firms such as broker-dealers under FINRA Rule 3120), it is also best practice for other types of investment advisers such as state-registered investment advisers or exempt reporting advisers.

How Coast To Coast Compliance Can Help.

If you would like Coast to Coast Compliance to complete or assist with your firm’s annual compliance program review, please reach out to us!