By Matt Baskir

Even if the July 21st Risk Alerts issued by the SEC (Division of Examinations) covering Fixed Income Principal and Cross Trades and Wrap Fee Programs do not apply directly to your business, there are some valuable lessons to learn. In my experience, regulators rarely hide the ball when it comes to areas of scrutiny or focused initiatives. In fact, they often say it directly or, in some cases, shout it from the rooftops. Take for instance, the November 19, 2020 Risk Alert about Investment Adviser Compliance Programs. The overriding (and blatant) messages there:  Employ a competent CCO – Give them sufficient resources, authority and engagement in the business – Continually monitor, update and strengthen your policies and procedures and compliance program.

Back to the July 21st Risk Alerts… They may not be as direct as other SEC communications, but definitely raise some important, big picture points, including:

  • Managing conflicts of interest;
  • The sufficiency and propriety of disclosures;
  • Understanding duties to clients and acting in their best interests;
  • Monitoring and oversight of trading activity; and
  • Reviewing, testing and continuously evaluating the effectiveness and consistency of policies and procedures and annual review process.

It’s also important to stress that it’s in every firm’s best interest to be proactive in addressing compliance program gaps or weaknesses and regulatory lapses, as opposed to waiting for possible formal action by the SEC. Case in point, the SEC’s July 26th announcement  charging 27 firms for Form CRS filing and delivery failures.

Better to take action in response to the Risk Alert than wait for the examination or investigation.

If you have any questions about 40 Act or Advisers Act compliance, starting a fund or other compliance or consulting solutions, please don’t hesitate to reach out.

The information contained herein is made available only for your assistance and convenience and for informational purposes. Nothing herein is designed to provide, and does not constitute, legal advice on any matter and should not be relied upon for that purpose. Any opinions included herein are those of the author and not attributable to the Nottingham Company, its management or affiliates.