On episode 82 of the CCO Buzz, Senior Compliance Consultant James Smith joins us to discuss the importance of Compliance Training at any firm.
CCO Buzz: Hello and welcome back to the CCO Buzz! I’m sad to say that this, in fact, is the last episode of the year, but I’m relieved and in awe that 2020 is coming to a close. I constantly ask myself, where has the time gone? Today, we’re discussing employee training. We have Core Compliance’s Senior Compliance Consultant James Smith joining us. He’s here to discuss the importance and value in today’s environment when it comes to Compliance Training for any firm.
So, with that, let’s begin…
James, you have an upcoming Risk Management Update titled, “Compliance Training: A Critical Component of Your Compliance Program,” where you discuss a rather important item that should be on every firm’s year-end to-do list, which is confirming adequate compliance training. In today’s fluid landscape why should firms focus on this now?
James Smith: Whether you are a registered investment adviser or broker-dealer, you will want to make sure that your employees have received compliance training by year-end. This year has been full of lessons, transformation, and pivots for all businesses in our industry and there are several items that firms should be considering when creating their annual compliance training.
In this Risk Management Update, I discuss these items and offer best practices to ensure that firms offer a comprehensive training program.
CCO Buzz: Oh wow, I can’t wait for that to come out! But as a general question, is annual compliance training a requirement for firms?
James Smith: Actually, it’s not specified as mandatory. But from my experience, it should be.
Under Rule 206(4)-7 of the Advisers Act (Investment Advisers Act of 1940), an investment adviser is required to adopt and implement written policies and procedures reasonably designed to prevent violation of the Advisers Act by the adviser or any of its supervised persons.
Although not specifically stated, it is expected by the SEC, and other regulators, that an adviser will conduct annual compliance training of its supervised persons on a variety of topics, including the adviser’s policies, procedures, and controls, as well as regulatory requirements that impact the investment adviser and its supervisory persons.
With broker-dealers, they’re required pursuant to FINRA Rule 3110(a)(7), to evidence the attendance and participation of each of their registered persons at an annual interview or meeting, conducted by a designated person either in-person, via webcast or by similar means. This important component of the broker-dealers’ supervisory system allows the firm to remind registered personnel of their responsibilities under the written supervisory procedures (“WSPs) and to remain current on applicable regulatory changes.
CCO Buzz: Especially after this year with all its changes to business models and remote work, I would hope that firms would take the opportunity to reassess and train their employees. But are there other areas necessary for review?
James Smith: Yes. In my article I discuss Content Development, a multi-prong approach to identifying subjects and creating content for firms and their annual compliance meeting (“ACM”).
And, in the last episode you discussed year-end prep with Tina Mitchell. She mentioned that as part of the testing program under Rule 206(4)-7, CCOs should review the firm’s policies and procedures, conduct an annual risk assessment and create a conflicts inventory to confirm all identified risks and conflicts have been adequately addressed and properly disclosed.
Once the risk assessment and conflicts inventory have been completed, CCOs can focus [on] the highest identified compliance risks in creating training topics and content for the ACM.
Firms should also review the risk alerts and examination announcements published by the SEC’s Office of Compliance Inspections and Examinations (“OCIE”) throughout the year for additional training topics.
CCO Buzz: That’s a great starting point. From your experience are there certain training topics that you feel firms should include or revisit this year?
James Smith: I provide a more detailed list in my article, but a few to consider are…
- Updates or changes to firm policies and procedures;
- Conflicts of interest and disclosures;
- Business continuity processes and controls;
- Privacy safeguards; and
- Any changes to business or controls in response to the COVID-19 pandemic – to name just a few.
CCO Buzz: Do you have any training topics that would be helpful for broker-dealers?
James Smith: Of course. Although the topics I mentioned before are also included for broker-dealers, a few additional topics would be…
- Code of ethics requirements;
- Gifts and entertainment;
- Dealing with clients with diminished capacity;
- Elder abuse and trusted contact; and
- Form U4 updates.
CCO Buzz: Wow, you’re just a fountain of information today aren’t you James? I can’t wait to read what other best practices you list in your upcoming article. What else does it cover?
James Smith: My article will cover key areas, such as the design, delivery and attendance; as well as attestations; the use of technology and planning for next year. Firms and CCOs alike need to approach Compliance Training for the new year in this environment as not only a critical pillar of their compliance program, but also for their continued growth and success.
For assistance with year-end projects or other compliance assistance, I encourage listeners to contact Core Compliance at email@example.com, or at (619) 278- 0020.
CCO Buzz: Wow, you wrapped that up nicely. Thanks for joining us today, James! And to all of our listeners from everyone here at Core Compliance – We wish you and yours a very Happy Holidays. Thanks!
CCO Buzz: Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week's episode of the CCO Buzz.