The Securities and Exchange Commission’s Office of Compliance Inspections and Examinations urged investment advisors to focus on five problem areas.
When firms or SEC examiners find violations, OCIE said the correct approach is to improve written compliance procedures, policies or processes, change business practices, or devote more resources or attention to compliance.
In a risk alert, OCIE listed the following as the most frequent topics that have resulted in deficiency letters to advisors after exams.
The Compliance Rule
The rule requires advisors to have written policies and procedures and do annual reviews of them, as well as have a chief compliance officer. The OCIE said typical examples of deficiencies are that compliance manuals are not current and annual reviews are not performed or are inadequate.
For regulatory filings, OCIE stressed accuracy. Examples of problems are inaccurate disclosures and filings, and untimely amendments to Form ADV.
The Custody Rule
The exam unit said advisors need to make doubly sure they know all their obligations. For example, online access to client accounts in some instances meets the definition of custody.
Code Of Ethics Rule
The rule requires advisors to adopt a code of ethics. OCIE told advisors to make sure they don’t leave out any of the information that is requested on ethics codes and Form ADVs.
Books And Records Rule
Advisors are required to make and keep certain books and records relating to their business. Consistency, completeness, accuracy and timeliness are cited as key.
Interestingly, the words “scam” and “fraud” do not appear in the risk alert.