When was the last time your firm updated its compliance policies and procedures?
Maybe the more pertinent question to ask is, “When and how often should you update your firm’s compliance policies and procedures?” In recent years, there has been a flurry of regulatory changes in the U.S. and globally. Ensuring compliance policies and procedures are current and offering training to team members are essential to keeping your firm out of the regulators’ crosshairs. Compliance policies and procedures are only useful if they are regularly updated.
For SEC-registered investment advisers, maintaining robust compliance policies and procedures is critical for regulatory adherence and operational integrity. The ever-evolving regulatory environment demands a proactive approach to compliance, highlighting the importance of annual reviews and consistent employee training.
Under rule 206(7) of the Investment Advisers Act of 1940, SEC-registered investment advisers (RIAs) are required to implement policies and procedures reasonably designed to prevent violations of the act and other federal laws. In addition, Rule206 (4)-7 requires advisers to conduct an “Annual Review” of their compliance program, which may prompt updates to compliance policies and procedures. While the SEC does not mandate a specific timeline for reviewing and updating compliance policies and procedures and the code of ethics, it is considered best practice to conduct reviews at least annually and more frequently if there are material policy changes.
When designing and reviewing policies and procedures, investment advisers should identify conflicts and other factors that create risk exposure for the firm and its investors. At a minimum, policies and procedures should address the following issues to the extent that they are applicable to the adviser:
Most advisers conduct annual firmwide compliance training after reviewing and updating the compliance program, including the compliance manual and code of ethics. Regular employee training has several benefits, the most obvious being the prevention of compliance violations. Additionally, it fosters a culture of compliance within the firm. These training programs engage employees at all levels, helping them understand the importance of compliance. When employees recognize the significance of compliance, they are more likely to follow policies and procedures. Regular training reinforces this importance, making compliance a shared responsibility across the organization.
Training also enhances operational efficiency by identifying and addressing weaknesses through a comprehensive gap analysis. This proactive approach helps streamline operations, reduce redundant processes, and enhance overall efficiency. Updated policies and procedures provide clear and consistent guidelines for employees, reducing ambiguity and ensuring everyone understands their roles and responsibilities within the compliance framework.
Above all, maintaining an effective compliance program instills trust in investors and other stakeholders. Investors expect their investment advisers to operate within regulatory requirements. By maintaining up-to-date compliance policies and ensuring employees are well-trained, advisers can build and maintain trust with investors.
Petra Funds Group’s compliance team has decades of experience managing SEC regulatory compliance programs for private fund advisers. The group’s expertise enables them to provide insight and guidance on a wide range of regulatory compliance services, from investment adviser registration to ongoing compliance support to performing SEC mock examinations. Learn more about Petra’s comprehensive compliance offering here and contact Jesse Brown with questions.
The SEC’s recent Compliance Outreach webinar made clear that amended Regulation S-P is now an exam priority, with advisers expected to demonstrate that information security and incident response policies are not only documented, but actively implemented, monitored, and aligned with the rule’s enhanced requirements.