In her testimony yesterday before the Committee on Financial Services of the United States House of Representatives SEC Chair Mary Jo White shared the following regarding third-party compliance reviews:
At my direction, staff is also preparing a recommendation to the Commission for proposed rules requiring third-party compliance reviews for registered investment advisers. The reviews would not replace examinations conducted by our Office of Compliance Inspections and Examinations, but would be designed to improve overall compliance by registered investment advisers.
If enacted, this could have a tremendous impact to investment advisers.
- Timing of proposal could be as soon as first of 2016
- Could have similar requirements of surprise exams; i.e., be required annually, have SEC filings made by the third-party (“TP”) examining firm, especially if material violations are discovered, etc.
- SEC may require the certain independence thresholds, which could mean a firm would have to hire a different consulting firm to do exams vs. the one they use for other compliance consulting services
- SEC may require the TP examining firms to have/obtain certain credentials, however, currently compliance consulting firms do not have an oversight board or other credentialing process; however, there are compliance certifications available for compliance professionals, such as the Certified Securities Compliance Professional designation sponsored by the National Society of Compliance Professionals or the Investment Adviser Certified Compliance Professional® Program sponsored by National Regulatory Services and the Investment Adviser Association
In light of this, investment advisers should consider adding compliance reviews to budget for 2016 and beyond – the more complex the business practices, the higher the cost most likely.
Core Compliance & Legal Services, Inc. (“CCLS”) believes that the proposal aligns with the SEC’s guidance that it is often difficult to supervise oneself. This initiative provides an additional internal control to help identify potential gaps not detected by internal personnel. CCLS will be tracking any proposed initiative closely.
For more information, please contact CCLS at firstname.lastname@example.org or 619.278.0020.