SEC warns advisers to step up compliance systems

The exams revealed some advisory firms are lacking sufficient regulatory protocols and technology

The SEC warned registered investment advisers Thursday they’re falling short on compliance with securities regulations and not empowering firm officials who are supposed to keep them in line.

The Office of Compliance Inspections and Examinations said in a risk alert that recent reviews of RIAs showed deficiencies related to the compliance rule, which requires firms to develop policies and procedures that ensure they meet their fiduciary and regulatory obligations.

“OCIE staff observed advisers that did not devote adequate resources, such as information technology, staff and training, to their compliance programs,” the risk alert states.

That worry is particularly acute when it comes to the role of chief compliance officers. The alert said CCOs were often spread too thin with other responsibilities. They also lacked the staff required to complete such tasks as performing annual reviews, accurately completing and filing Form ADVs or responding to books and records requests from the Securities and Exchange Commission.

The SEC found that CCOs were not given the latitude or access required to do their jobs effectively.

The message to RIAs is to treat their CCOs with respect, said Carlo di Florio, chief services officer at ACA Compliance Group.

“They should make sure their CCO has adequate independence, standing and authority,” said DiFlorio, a former OCIE director. “You have to give them authority to make critical decisions to support regulatory compliance.”

The risk alert also pointed out problems with annual reviews of written policies and procedures.

“OCIE staff observed advisers that were unable to demonstrate that they performed an annual review or whose annual reviews failed to identify significant existing compliance or regulatory problems,” the alert states.

The SEC also said firms had not hired additional compliance staff or added adequate information technology to ensure that compliance keeps pace with the growth of their operations.

“Regulators are getting sophisticated in their technology and data analytics, and they expect firms to do the same,” Di Florio said.

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