November 8, 2018

Insufficient Resources for Compliance Program

On November 6, 2018, the Securities Exchange Commission ("SEC") announced a settlement with a former Chief Executive Officer ("CEO") of a now-defunct Registered Investment Advisor. The settlement included the CEO’s censure from the industry and a monetary fine of $45,000.

The bulk of the SEC’s findings centered around the fact that the CEO did not take appropriate action to rectify inadequate resources to effectively implement their compliance program.
On multiple occasions, the named Chief Compliance Officer ("CCO") brought deficiencies and recommendations to increase the firm’s internal or external resources to effectly address compliance functions in the firm’s compliance program to the CEO and management’s attention. These recommendations were largely ignored, which led to many of the Adviser’s Act violations found by the SEC.
Key reminders & tasks related to Compliance Resourcing and Authority:
  • Management must set the tone for compliance.
  • Management must provide adequate resources to properly affect the firms’ compliance program.
  • The CCO must be in a position of authority to effect change and policy within the firm.
  • For those multi-hatted CCO’s, exploration in adds to staff or the delegation to internal (or external) resources to assist with the compliance program is advisable.
To read the entire enforcement case, see the SEC Administrative Proceedings.


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