Background
Broker/dealers and investment advisers are required to maintain compliance policies and procedures, also known as written supervisory procedures. The maintenance and establishment of compliance policies and procedures proves to be a daunting task that is a considerable time commitment. Compliance professionals and departments frequently have difficulty in timely updating policies either due to time, the need for additional guidance, or due to internal factors.
Requirements for Broker/Dealer
Broker/dealers are responsible for establishing, maintaining, and enforcing written procedures to supervise business activities and associated persons to achieve compliance with applicable laws and regulations. Broker/dealers are further responsible for the establishment, maintenance, and enforcement of supervisory control policies and procedures. At a minimum, a firm’s procedures should address:
- all applicable regulations;
- business activities, including products sold;
- all associated persons;
- the identification and management of risk; and
- financial controls.
A standard concept in reviewing and designing procedures is to make sure each applicable area addresses who is responsible, what actions are to be conducted, when such actions are to be taken, and how a firm will document its supervision.
Requirements for Investment Advisers
An investment adviser is required to adopt and implement written policies and procedures reasonably designed to:
- prevent violations of securities laws, such as the Advisers Act, by the Adviser and its supervised persons;
- detect violations of those laws; and
- correct promptly any violations that have occurred.
An investment adviser should first identify conflicts and other compliance factors creating risk exposure for the investment adviser and its clients, then design policies and procedures that address those risks. Investment advisers are to consider their fiduciary and regulatory obligations under the Advisers Act when designing their compliance programs and to formalize policies and procedures to address them.
The SEC has provided guidance on its expectations as to what topics should be addressed. These areas are:
- portfolio management;
- trading practices;
- insider transactions;
- disclosure to clients and prospective clients;
- safeguarding of client assets;
- recordkeeping;
- valuations;
- safeguards for the protection of client records and information; and
- business continuity planning.
How Can FIC Help?
FIC has long been sought for its expertise in drafting and reviewing compliance policies and procedures. FIC offers a variety of programs and services in meeting the needs of broker/dealers of investment advisers. Firms can request:
- New policies and procedures addressing all aspects of the firm and regulations
- Policies and procedures addressing specific areas of regulations and business activities
- Periodic updating services whereby FIC will quarterly update a firm’s policies and procedures for changes in regulations and changes requested by the firm
- Periodic reviews of the firm’s policies and procedures based on the scope of the engagement
FIC will develop customized policies and procedures that are customized to that particular client. The procedures will be compliant with applicable regulations, reflective of the firm’s activities, and commiserate with communications between FIC and the client.