Episode 12: P & P Manuals and What to Know in Compliance for Q2

Michelle Jacko, CEO of Core Compliance and Legal Services, is back this week to talk about Policy and Procedure Manual updates, and why you should be considering them now in Q2.


Hello, this is Michelle Jacko, CEO of Core Compliance and Legal Services, and on this week’s CCO Buzz, we’re going to be discussing various initiatives you should be thinking about during the second quarter. 

The first one is your policy and procedure manual. Generally, the first quarter for any compliance program serves as a launching pad to look at how are we servicing our clients, how are we providing them with disclosures, and of course fulfilling regulatory deadlines for various filings. 

For those of you who are investment advisers with a fiscal year end of 12/31, you just completed filing and submission of your Form ADV. The question that we have now is how does that impact the rest of your overall compliance program? 

Well, in terms of your policy and procedure manual, you will likely need to make updates based upon disclosures that were made within the Form ADV. It’s a good time now to go back and take a look at what disclosures did we add about our services, do we have policies and procedures in place about those products and services that are being offered. To the extent they aren’t there, you need to think about what additional controls do we need to memorialize in our policy and procedure manual, and likewise, what type of training might be required for our financial advisers? 

The other area to consider is that there have been numerous regulatory initiatives. Everything from the SEC’s exam priority list, and for those of you who are broker-dealers, FINRA’s examination priority list, provides a great checklist of different areas you should be considering for policy and procedure manual development and enhancements. 

New areas, such as the mutual fund share class initiative, could trigger additional controls that are needed within your organization. This would include evaluating what types of mutual fund share classes are offered, and what kind of analytics are required to ensure that you are offering the best possible share class to your investors overall. 

Also consider things such as cryptocurrencies, is that now a facet of your portfolio management services, and if so, how are you determining whether or not there are federal securities laws that apply to that offering? What are your internal controls for monitoring cryptocurrencies, how are you evaluating suitability of investors, and have you memorialized these controls in your policies and procedures manual? 

Then, take a look at the hot topics for examination priorities. Areas such as performance advertising, are you now offering hypothetical back tested performance, and if so, does your policy and procedure manual articulate those various areas of consideration for disclosure and overall marketing collateral that are distributed to your clients? 

For cybersecurity, look to see whether or not your incident response plan is robust enough and addresses the various areas that the SEC focused on in its 2017 release on findings of cybersecurity examinations of investment advisers. 

Consider whether or not you have branch offices, and whether or not there are supervisory controls in place, and whether or not those controls are articulated in the policy and procedure manual. 

Finally, consider forensic testing. How are you looking at the strength of these internal controls and is this addressed in the policy and procedure manual?  

Importantly, all of these various steps are required to take a look at the comprehensiveness of your compliance program. For most of the areas that we have just named, we have past episodes of the CCO Buzz which provides details on what the regulatory compliance issues are, we will provide the link, which will be embedded within the transcript of this particular CCO Buzz. We encourage you to read it for further consideration. 

[Transcriber’s note: please see hyperlinked text throughout this article.] 

If you have questions on how your policy and procedure manual can be updated and enhanced to address these various subject matters, we invite you to please contact us, at area code 619.278.0020 or at info@corecls.com.


Leave a Reply

Your email address will not be published. Required fields are marked *