The SEC's 5 most Common Compliance Deficiencies


To assist and prepare SEC registered investment advisers for exams, The SEC’s Office of Compliance Inspections and Examinations (OCIE) issued a Risk Alert listing five of the most frequently identified compliance topics in deficiency letters following an examination.

1) The Compliance Rule, Rule 206(4)-7

A firm’s compliance manual must reflect the firm’s practices and be kept updated. These policies and procedures should be reviewed annually and all advisers should follow them. An outdated or off the shelf compliance manual can mean a deficiency during a SEC Exam.

2) Insufficient Filings

This includes missing deadlines for regulatory filings as well as making inaccurate filings on Form ADV and/ or Form PF. Make sure all information disclosed in regulatory filings are accurate and timely.

3) “The Custody rule,” Rule 206(4)-2

The OCIE noted this may be in relation to a lack of understanding about the requirements of the rule. For instance, Advisers did not recognize that they may have custody due to online access to client accounts.

4) The “Code of Ethics Rule,” Rule 204A-1

This rule requires an adviser to adopt and maintain a code of ethics and it outlines several requirements for that code. Not following any one of these requirements will result in an exam deficiency for the firm.

5) “Books and Records,” Rule 204-2

Advisers should maintain all required records as they apply to the investment advisory business, accurately and consistently.

By releasing this Risk Alert, the OCIE provides significant insight for compliance officers into the areas that should be considered when devoting resources to and evaluating their programs. This Risk Alert reflects issues from more than 1,000 examinations from the past two years. In some cases, these deficiencies lead to enforcement action against the adviser.

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You can read the full risk alert here.