Background
Broker/dealers and SEC registered investment advisers are responsible for conducting annual reviews of their supervisory controls and compliance programs, respectively. The following paragraphs provide some basic information on annual compliance reviews.
Requirements for Broker/Dealers
For most broker/dealers, annual reviews are required to be conducted of their:
- Supervisory Controls;
- Anti-Money Laundering Compliance Program;
- Business Continuity Program; and
- Identity Theft and Prevention Program.
Further, annual reviews are to be conducted of all business activities in which it engages and all offices serving in the capacity of an office of supervisory jurisdiction. Additional reviews may be warranted or required.
The most time-consuming and comprehensive of these reviews is typically the Annual Supervisory Controls Review. An adequate annual review involves the following actions:
- Conducting an inventory of the firm’s businesses and activities
- Determining all relevant regulations pertaining to those businesses and activities
- Reviewing the firm’s prior regulatory examination history, complaint history, internal audit history, and the prior year’s testing of supervisory controls
- Analyzing the regulations applicable and what questions those rules would pose for the firm
- Analyzing internal requirements and determining if such internal requirements would restrict, prohibit, or limit a firm’s ability to comply with applicable regulations
- Comparing the results from the analysis of a firm’s internal own requirements to a firm’s supervisory procedures in making a determination of whether or not the firm should adopt or amend procedures
The results and findings of the Annual Supervisory Controls Review are required to be documented in writing. Subsequent to such review, the report should be provided to the Chief Compliance Officer, who in conjunction with other firm employees should effect changes in policies and activities of the firm to address any weaknesses.
Requirements for Investment Advisers
All investment advisers registered with the SEC are required to conduct an annual review of those policies and procedures drafted pursuant to Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Compliance Program”). Changes in business activities, compliance matters that arose during the previous year, and changes in applicable regulations should always be considered in such review. In its review a firm should be reviewing for:
- gaps in policies and procedures with applicable regulations and internal practices
- the identification and management of risks and conflicts of interest
- the impact of any changes in how a firm conducts compliance
- whether new business activities been properly addressed
- have prior audit findings been addressed
To undertake such an evaluation, the policies and procedures of a firm are just the beginning of the review.
How Can FIC Help?
FIC has conducted numerous annual reviews of broker/dealers investment advisers. We will provide you valuable intelligence so that you have a better understanding of your firm’s practices, policies, risks, and conflicts of interest. We will also provide strategic recommendations and guidance that you can use to improve your firm while giving insight on applicable regulations. FIC conducts many other reviews, including mock audit reviews and departmental reviews.