Has your firm updated its policies and procedures to reflect substantive regulatory changes resulting from Dodd-Frank and other issues now addressed during regulatory examinations, including branch office procedures, separate account manager due diligence, outside business activities, pay-to-play, whistleblower and custody issues? The SEC is becoming adversarial relative to advisors who fail to update their written policies on an ongoing basis (at least annually). From the commission’s perspective, failure to do so is evidence of the lack of strong compliance culture within the firm. Policies for the year 2010 are no longer current, and perhaps, depending upon your operations, neither are 2011 policies. Policies prior to 2010 are most likely woefully outdated.
During recent exams, the SEC has also been asking for certain supplemental operational procedures pertaining to various issues, which can include, among others: branch office reviews; account opening procedures; processes for devising, monitoring and revising investment models or strategies used by the firm to manage client assets, and corresponding results of any ongoing model dispersion analyses; separate account and private fund due diligence procedures; and, if not GIPS verified, how the firm calculates any composite performance presentations. Still other issues can be addressed with a customized compliance calendar, which I generally prepare when conducting on-site mock exams. However, since counsel (or your compliance consultant) is generally not involved with the firm’s day-to-day operations, it is incumbent on the firm to prepare such applicable supplemental procedures for review by counsel.