Any Investment adviser that is registered with the SEC must comply with certain annual updating and review requirements under the Investment Advisers Act of 1940. These reviews must be thorough and precise. Specifically under Rule 206(4)-7 (the Compliance Rule) of this Act, investment advisers are required to at least annually review it’s policies and procedures that are established under this rule. This annual review must consider any compliance matters that arose during the previous year, any changes in the business activities of the investment adviser or its affiliates, and any changes in the Advisers Act or applicable regulations that might suggest a need to revise the policies or procedures. The annual review itself must also be well documented by the investment adviser.
Another important matter that must be addressed is the investment adviser’s Compliance Manual. The manual itself must be reviewed for any needed modifications or updates. Also, all employees of an investment adviser must read (or reread) the compliance manual and document that they have read and understand it.
Other items of note that must be reviewed annually include:
• Code of ethics
• Form ADV
• Form CRS
The SEC has recently issued a Risk Alert with regard to its observations regarding investment adviser compliance programs, specifically as those deficiencies are related to Rule 206(4)-7. The professionals at Cobia Compliance will work with you to ensure that your firm is prepared for its annual review and assist with corrective measures where needed.
Cobia Compliance specializes in providing comprehensive compliance services to broker-dealers and investment advisers. Our goal is to get to know you, your personnel, and most importantly, your firm so that we can provide customized compliance solutions rather than boiler-plate templates that leave you wondering as to the next step to take.
Our commitment is to be more than just another consultant. Cobia wants to partner with you to educate and train your existing staff so that they are able to carry on their compliance responsibilities with confidence.
FINRA Rule 3120 requires a broker-dealer to have a system of supervisory control policies and procedures (SCPs) that tests and verifies a firm’s supervisory procedures. It is essential for a firm to recognize that FINRA Rule 3120’s requirement to have specific SCPs differs from the requirement for WSPs. A firm not only needs to maintain WSPs, but the firm also must have SCPs to test and verify, at least annually, that its WSPs are reasonably designed with respect to the firm’s and its associated persons’ activities to achieve compliance with applicable securities laws and regulations and FINRA rules, and to create additional or amend WSPs as identified by such testing and verification. Risk-based methodologies and sampling may be used to determine the scope of testing. The testing ensures that a firm’s supervisory procedures are reviewed and amended regularly in light of changing business and regulatory environments.
Pursuant to Rule 3120, a firm must designate principal(s) to be responsible for establishing, maintaining and enforcing a firm’s SCPs. The designated principal(s) also must prepare, at least annually, a report detailing the firm’s supervisory control system and submit it to senior management (Rule 3120 Report). The Rule 3120 Report must include a summary of the test results and significant identified exceptions, and any additional or amended supervisory procedures created in response to the test results.
If a firm has reported $200 million or more in gross revenue on its FOCUS report in the prior calendar year, FINRA Rule 3120 requires that the firm’s annual report include specified additional content, to the extent applicable to the firm’s business.
For information on how Cobia Compliance can assist you in preparing your Rule 3120 annual report, click the “Contact Us” button above and let us know how best to reach you.
OCIE Observations: Investment Adviser Compliance Programs