Many constituents have a vested interest in determining a firm’s culture of compliance: regulators, investors, prospective employees, among others. Investment advisers registered with the Securities and Exchange Commission must demonstrate their compliance culture during periodic examinations by the Office of Compliance, Inspection and Examinations. Current and former SEC examination staff often state that the primary indicator of a healthy compliance culture is the “tone from the top.” There are a number of steps that a firm can take to demonstrate that top management fosters an effective compliance culture. Continue reading
As the year ends, SEC registered investment advisers to private funds start considering how to assess their firm’s compliance culture. The Advisers Act of 1940 requires a formal annual review of the adequacy of “written policies and procedures reasonably designed to prevent violation of securities laws.” In other words, every year Chief Compliance Officers ask themselves how they can actually demonstrate their effectiveness.
Rather than viewing this process as a comprehensive narrative report identifying all deficiencies, perhaps a more useful construct is to think of the annual review as a way of collating and assessing activity throughout the year. Paradoxically, assembling information used throughout the year makes the process easier than attempting a comprehensive one-shot evaluation. Effective annual reviews are more like a movie than a photograph. Continue reading
A fund manager typically spends most of its time not only contemplating how to maximize returns for investors, but also navigating the array of compliance and regulatory concerns involved in running a private fund. Because the manager is so caught up in thinking about these daily considerations, it may lose sight of the multitude of issues that arise when it comes time to wind down that same fund. If the manager exercises some foresight regarding the fund’s eventual wind-down and puts proper procedures in place, however, the whole process can be both smoother and less fraught with legal and regulatory risks. Once a manager decides to wind down a fund, it must navigate myriad considerations and decisions during the process. Continue reading