The question of how many resources your firm should allocate to your compliance department to fulfill its regulatory responsibilities can be a hot button topic for investment advisory firms of all sizes.
The hard, cold truth is that senior management must manage to the bottom line in every department, not just compliance. Smaller firms in a compliance budget squeeze often think, “Well, I’m OK because I care about the client and no clients have been harmed.”
Unfortunately, the U.S. Securities and Exchange Commission doesn’t solely look at client harm; they look at whether you have a strong compliance program in place to prevent violations of regulations and client harm.
Not having sufficient resources for the compliance function regardless of the size of your firm in this day and age can be a very costly mistake. It can cost far more in fines and penalties in the long run than making sure you have a good compliance staff in place that can administer a solid compliance program.
Resources That Matter Most
Many investment advisory firms don’t realize that some of the most valuable resources a compliance department can have don’t even cost a dime. Yes, the cost of employee labor and the need to occasionally refresh evolving technology solutions are certain to grab the attention of the finance department. But there are certain resources available to compliance at your firm that don’t require approval from accountants.
On November 19, 2020, Peter Driscoll, Director of the SEC’s Office of Compliance Inspections and Examinations (OCIE), delivered a speech at the SEC’s annual compliance outreach conference in Washington, D.C. He used the occasion to emphasize the three most important resources Chief Compliance Officers (CCOs) need to be effective in their role – empowerment, seniority, and authority.
A supportive tone at the top from senior management at a firm is essential to drive a culture of compliance throughout a company. Without a show of strong support for compliance by senior management, employees will not be as mindful of policies and procedures and compliance can become an afterthought. And that’s a prescription for failure. Senior management must champion the idea that compliance doesn’t exist to police the firm; it’s role is to help the firm and protect investors.
How to Instill Empowerment, Seniority, and Authority
Mr. Driscoll said an adviser's CCO should be competent and knowledgeable regarding the Investment Advisers Act of 1940 and should be empowered with full responsibility and authority to develop, implement, and enforce appropriate policies and procedures for the firm.
He also said a CCO, a required position at any investment advisory firm, should have a position of sufficient seniority and authority within the organization to compel others to adhere to compliance policies and procedures.
One cause for concern is when the CCO of any firm is asked to wear too many additional hats instead of focusing solely on their compliance responsibilities and serving as an essential component of running an advisory business.
The SEC is keeping a watchful eye on whether CCOs are placed high enough on the company org chart to give the position the respect it deserves, whether CCOs are replaced because they challenge questionable activities or behavior in the firm, and whether CCOs are scapegoated for the failure of officers or employees to follow firm policy or procedure.
What CCOs Can Use Most That Money Can Buy
Technology solutions remain high on the wish list of many CCOs. Advancements in technology have become more affordable, and technology can do a lot of the work previously performed by employees in a more cost-effective manner. To a certain extent, technology can also reduce the element of human error that may be involved in various tasks. An effective cybersecurity system and a capable data protection program are must-haves.
Core Compliance understands the growing complexities of the CCO function and compliance as a whole. We can work with your firm to achieve best practices in terms of the CCO function and help you create a culture of compliance that will pay for itself many times over. Nothing is more valuable than a firm’s reputation.
Call 619.278.0020 or contact us at Info@corecls.com today to schedule a strategy session with one of our experienced specialists.