Third-party firms acting as chief compliance officers for advisors are falling short in a number of areas—including tailoring compliance practices to an advisory firm’s business—the Securities and Exchange Commission’s exam division warned Monday.
The SEC’s Office of Compliance Inspections and Examinations warned in a Monday Risk Alert that the growing trend in the investment management industry of outsourcing the compliance role to a third party, such as a consultant or law firm, is not without risk.
The exam division urges advisors employing outside compliance providers to be especially mindful of their obligations under the SEC’s compliance rules — Rule 206(4)-7 under the Investment Advisers Act of 1940 and Rule 38a-1 under the Investment Company Act of 1940 — and to assess whether the third party they’re using is complying with those rules.
OCIE staff, which conducted nearly 20 exams as part of its Outsourced CCO initiative, states that the risk alert should help advisors identify weaknesses in their own compliance programs.