Updating Written Compliance Policies and Procedures

Copy of Slides

To access a copy of the slides from today’s presentation please go to:

www.RIA-Compliance-Consultants.com/UpdatingPolices&Proced

ures.html

PresentersTammy EmsickSenior Compliance ConsultantRIA Compliance Consultants, Inc.

Debbie DeatonSenior Compliance ConsultantRIA Compliance Consultants, Inc.

Presentation Disclosures• Although the sponsor of this presentation, RIA Compliance Consultants, Inc. (“Sponsor”), is an affiliate of a law firm and

Sponsor may have an individual on its staff that is also licensed as an attorney providing legal services in a completely separate capacity, Sponsor is not a law firm and does not provide legal services or legal advice. A consulting relationship with Sponsor does not provide the same protections as an attorney-client relationship.

• This presentation is offered for educational purposes only and should not be considered an engagement with Presenter or Sponsor. This presentation should not be considered a comprehensive review or analysis of the topics discussed today. These materials are not a substitute for consulting with an attorney or compliance consultant in a one-on-one context whereby all the facts of your situation can be considered in their entirety.

• Despite efforts to be accurate and current, this presentation may contain out-of-date information. Additionally, Presenter and Sponsor will not be under an obligation to advise you of any subsequent changes.

• Information provided during this presentation is provided "as is" without warranty of any kind, either express or implied, including, without limitation, warranties and merchantability, fitness for a particular purpose, or non-infringement. Presenter and Sponsor assume no liability or responsibility for any errors or omissions in the content of the presentation.

• There is no guarantee or promise that concepts, opinions and/or recommendations discussed will be favorably received by any particular court, arbitration panel or securities regulator or result in a certain outcome.

• To the extent that you provide RCC with your email address, it will be added to RCC’s electronic newsletter mailing list regarding compliance issues for investment advisors. You may opt out at any time by calling RCC at 877-345-4034 or clicking at any time the “unsubscribe” link on the electronic newsletter.

• Communication with today’s webinar presenter is not protected by attorney-client privilege. Please keep questions during this seminar in a hypothetical form. This seminar session and/or the presentation materials may be recorded, copied and/or shared with third parties and/or posted to our public website.

Agenda• Investment Advisers Act of 1940 (“Advisers Act”)

Rule 206(4)-7• Risk Assessment• Annual Compliance Review• Regulatory Changes• Other Potential Update Triggers

Requirements of Rule 206(4)-7• Must adopt and implement written policies and

procedures reasonably designed to prevent violation, by you and your supervised persons, of the Act and the rules that the Commission has adopted under the Act;

• Review, no less frequently than annually, the adequacy of the policies and procedures established pursuant to this section and the effectiveness of their implementation; and

• Designate an individual (who is a supervised person) responsible for administering the policies and procedures that you adopt (Chief Compliance Officer).

Requirements of Rule 206(4)-7• Must have written policies and procedures

• Not required to have a stand-alone compliance manual

• Must be reasonably designed

• Must be customized to fit the needs of your firm – don’t settle for an off-the-shelf manual

Risk Assessment• In order to develop written compliance policies and

procedures “reasonably designed to prevent violation, by you and your supervised persons” of the Advisers Act and the rules thereunder, you must first determine where risks or potential risks exist in your investment advisor practice. You need to identify all existing or potential conflicts of interest.

Risk Assessment• A Risk Assessment should have been one

of the first steps taken by your firm when developing your written compliance program

• Your firm should review and update the identified risks on at least an annual basis.

Risk Assessment• If you have not previously conducted the Risk

Assessment prior to developing your written compliance program, you should still do it.

• SEC has provide some resources and guidance for conducting a risk assessment. For more information go to:

http://www.sec.gov/info/iaiccco/iaiccco-resources.htm

Risk Assessment• Once you have identified all areas of risk, you

should have written policies and procedures to address all areas where you are at risk for violation of the Advisers Act or similar state regulations. These policies and procedures must be designed to mitigate, manage, and control each risk area so that violations can be prevented or, if violations occur, such violations will be detected promptly and corrected.

Annual Compliance Reviews• Your annual compliance review should be the

main process for determining if your written compliance program needs to be updated.

• An annual compliance review should not simply consist of reading through the manual; it should test the comprehensiveness of the program and how well it is being implemented.

Annual Compliance Review• Deficiencies found during the annual

compliance review should be documented and reviewed to determine if new procedures need to be developed or if existing procedures need to be revised.

• If revisions are necessary, the firm should set deadlines for developing and implementing the new procedures.

Annual Compliance Review• An SEC or state examiner will expect to find

exception reports, compliance checklists, and management reports that note problems and issues.

• If a firm indicates that no compliance problems have been found, it is likely to raise suspicion with the examiner and will likely result in the examiner conducting additional testing to confirm that no problems actually exist.

Annual Compliance Review• The regulatory examiner will also evaluate the

timeliness with which compliance programs are found and corrected. Examiners will request information regarding:– When problems were found– When problems occurred– When and how problems were resolved– Whether factors that allowed the problems to happen

were identified, corrected, or improved.

Regulatory Changes• Changes in investment advisor regulations

should be one of the most obvious factors that may affect your firm’s written compliance program.

• Anytime a new rule is released or a rule is changed, you should assess how those changes affect your firm’s written compliance program.

Regulatory Changes• The following are some examples of regulatory

changes that have occurred in the past couple of years that may have affected your firm’s written compliance program:– New Form ADV Part 2 Requirements– Custody Rule Changes– Rule 206(4)-5 –Political Contributions by Certain

Investment Advisers– Dodd-Frank Wall Street Reform and Consumer

Protection Act Provision Regarding Whistleblower Complaints

Regulatory Changes• You should not wait until the firm’s annual

compliance review to do an assessment of whether regulatory changes have affected your written compliance program.

• Your written compliance program should be reviewed and updated by the time the regulatory changes are effective.

Other Potential Update Triggers

• Changes in the firm’s business structure• Changes in the firm’s products• Changes in service providers• Changes in supervised persons• Changes in business arrangements or

affiliations

Other Potential Update Triggers• Changes in compensation arrangements

with solicitors, finders, or other service providers

• Changes in brokerage arrangements and trade execution

• Changes in registration status• Changes in marketing and advertising

Regulatory Violations

• Not maintaining adequate written policies and procedures may at a minimum result in a violation of Rule 206(4)-7 of the Investment Advisers Act of 1940 (“Advisers Act”). Additionally, not maintaining and updating your policies and procedures in a timely manner may result in violations of other Advisers Act Rules.

About UsServe Over 300 Investment Advisor FirmsPrincipals Are Industry Experienced Working in Compliance or Law Departments & Hold Professional CredentialsConsult with Retail & Institutional FirmsOffer Full Array of IA Compliance ServicesReasonably Priced at Midwest Rates

RIA Compliance Consultants, Inc. is not a law firm and does not provide legal services.

Copy of Slides

To access a copy of the slides from today’s presentation please go to:

www.RIA-Compliance-Consultants.com/UpdatingPolices&Proced

ures.html

Schedule Introductory Call via Online Appointment System

https://my.timedriver.com/QQ21L

Thank You

Tammy EmsickSenior Compliance Consultant

RIA Compliance Consultants, Inc.877-345-4034 x 102

temsick@ria-compliance-consultants.com