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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SEC Action Lookup Website

The U.S. Securities and Exchange Commission ("SEC") has launched a new website [https://www.sec.gov/litigations/sec-action-look-up] to assist investors as well as recruiting advisors with a search tool to search for those individuals for which the SEC has taken action.

The website search includes individuals against whom a judgment or order has been issued by the SEC, including individuals who settled, defaulted, or contested their actions, provided a judgment or order was issued against them.

The results will not include individuals whose cases are currently pending at the trial court or those against whom no judgment or order has been issued. Results will also not include individuals named in district court actions as “relief defendants.” See https://www.sec.gov/sec-action-lookup-information for a full description.

Advisor Takeaways:

The SEC continues to try and close information gaps for investors. Compliance personnel should reference this site before hiring any supervised person. In addition, while reviewing these regulatory actions may provide some entertainment value, there are lessons to be learned. Not every action is rooted in intent. Mistakes happen and mistakes can be costly. Compliance Officers should add this resource to their toolkit.

AdvisorAssist is here to assist with any compliance or regulatory questions you may have.

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