As the year winds down, there are several items you’ll be focused on completing. One that belongs on the list is confirming that adequate compliance training has been provided to your personnel. Whether you are a registered investment adviser or a broker-dealer, you’ll want to make sure your employees have received compliance training by year-end.
There are several items firms should consider when creating their annual compliance training. In this Risk Management Update (“RMU”), we discuss those items and offer recommendations and best practices.
Is Annual Compliance Training Required?
Under Rule 206(4)-7 of the Investment Advisers Act of 1940[1], 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 that the 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 the regulatory requirements that impact the firm and its supervised persons.
Similarly, broker-dealers are required, pursuant to FINRA Rule 3110(a)(7)[2], 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-dealer’s 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.
Developing Your Compliance Training Content
Investment advisers should take a multi-pronged approach when identifying subjects and creating content for their annual compliance meeting (“ACM”). 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 that all identified risks and conflicts have been adequately addressed and properly disclosed.
Once the risk assessment and conflicts inventory are complete, the CCO can focus on the highest identified compliance risks when creating training topics and content for the ACM. As part of this process, the CCO should also review the risk alerts and examination priorities published by the SEC’s Division of Examinations (formerly the Office of Compliance Inspections and Examinations, or OCIE). Reviewing these publications helps the CCO identify the areas the SEC and other regulators are focused on during examinations — key items to include in the ACM.[3]
Compliance Training Topics for Investment Advisers
After completing these reviews, you should have a list of topics for the ACM. Recommended topics include:
- Updates or changes to firm policies and procedures
- Culture of compliance and its importance to your business
- Conflicts of interest and disclosures
- Code of Ethics requirements
- Outside business activities
- Cybersecurity
- Business continuity processes and controls
- Privacy safeguards
- Dealing with clients with diminished capacity
- Investment adviser representative Form U4 and Part 2B updates
- Anti-money laundering processes and requirements
- Remote and hybrid work arrangements and any related changes to controls
Compliance Training Topics for Broker-Dealers
In identifying content for the broker-dealer ACM, compliance personnel should focus on issues of relevance to the firm, items noted as part of the firm’s annual review and risk assessment, and the guidance in FINRA’s annual Regulatory Oversight Report.[4] Broker-dealers should consider the following topics:
- Updates or changes to firm written supervisory procedures
- Culture of compliance and its importance to the business
- Code of Ethics requirements
- Outside business activities
- Gifts and entertainment requirements
- Cybersecurity
- Business continuity processes and controls
- Privacy safeguards
- Dealing with clients with diminished capacity
- Elder abuse and trusted contact
- Form U4 updates
- Anti-money laundering processes and requirements
- Remote and hybrid work arrangements and any related changes to controls
Designing and Delivering the Training
As important as it is to identify topics and create content, it is just as important to design your training so that it provides the right level of detail without overwhelming your audience. Whether you are creating a PowerPoint presentation or presenting via videoconference, keep the content to short, precise bullet-point statements. Consider using graphics or diagrams, and use real-life examples to illustrate your controls or the consequences of non-compliance. It’s also okay to ask questions of your audience to test their knowledge of your policies and procedures — those questions will help you tailor content to areas of concern.
Finally, make sure you track attendance at your training sessions. If presenting in person, have attendees sign an attendance sheet next to their printed name. If you are presenting the annual compliance meeting via videoconference (for example, Zoom or Microsoft Teams), capture an attendance list from the meeting platform or have personnel send an email confirming attendance.
Collecting Attestations
This is also a good time to have personnel attest to compliance with your policies and procedures (for investment advisers) or written supervisory procedures (for broker-dealers). As noted earlier, your training content should highlight any changes made to your current procedures manual or WSPs. The best way to deliver the manual and gather attestations is to use a technology solution. These tools make distribution efficient for both your compliance team and your personnel, and they help the compliance team satisfy books-and-records requirements by centralizing attestations in a user-friendly system.
Planning Your Training for the Year Ahead
It is never too early to start planning for next year. The first step in building a robust training program is developing a plan. As part of that planning, both investment advisers and broker-dealers should consider:
- Regulatory, business, or product changes planned for the coming year
- The time needed to develop the training
- The best means of delivery, including increased use of technology
- The best time of year to present the training
- How attendance will be confirmed
Firms should also consider providing training throughout the year. Options include third-party webinars, conference attendance, simulated phishing exercises, short (roughly one-minute) videos, and the more traditional periodic compliance emails. The SEC, FINRA, and state regulators would rather see training delivered throughout the year than a single “one and done” session at year-end.
Frequently Asked Questions
Is Compliance Training Required for Investment Advisers?
Rule 206(4)-7 does not expressly require training, but the SEC expects advisers to provide annual compliance training as part of a reasonably designed compliance program. Broker-dealers have a more explicit obligation: FINRA Rule 3110(a)(7) requires an annual compliance interview or meeting for each registered person.
What Topics Should Annual Compliance Training Cover?
Training should be risk-based and tied to your firm’s annual risk assessment and current regulatory focus areas — typically including policy and procedure updates, conflicts of interest, the Code of Ethics, cybersecurity, anti-money laundering, privacy, and protecting senior or vulnerable investors, among others.
How Often Should Firms Provide Compliance Training?
At least annually. In practice, regulators prefer to see training delivered throughout the year — through short videos, compliance reminders, and targeted sessions — rather than a single year-end meeting.
Make Training a Pillar of Your Compliance Program
The development and delivery of annual compliance training is a critical pillar of your compliance program. Devote real time to the development, delivery, and completion of it — doing so helps firms close out the year strongly and begin planning for the year ahead.
For assistance with year-end projects or other compliance support, contact us at (619) 278-0020 for more information.
Author: Core Compliance & Legal Services (“Core Compliance”). Core Compliance works extensively with investment advisers, broker-dealers, investment companies, hedge funds, private equity firms and banks on regulatory compliance issues.
This article is for information purposes and does not contain or convey legal or tax advice. The information herein should not be relied upon in regard to any particular facts or circumstances without first consulting with a lawyer and/or tax professional.
[2] See FINRA Rule 3110
[3] See SEC Division of Examinations — Examination Priorities
[4] See FINRA Reports & Studies (Annual Regulatory Oversight Report)
