Are Your Disclosures and Compliance Programs SEC Compliant?

The Division of Examinations (“Division”) recently published a risk alert to highlight observations related to examinations of mutual funds and exchange-traded funds (“funds”) practices and compliance in certain areas that may have an impact on retail investors. The alert includes various examples of deficiencies and strong compliance practices observed by the Division in order to assist advisers with identifying any weaknesses and gaps in their own compliance programs.

The examinations focused primarily on:

  • The effectiveness of the compliance policies and procedures of the funds and their advisers
  • Disclosures by the funds to investors and fund governance practices

Advisers Should Consider the Below Questions to Determine Whether the Compliance Program is Reasonably Designed and Effective to Meet Obligations in These Areas

Are Your Disclosures and Compliance Programs Sec Compliant

Compliance Programs

  • Are the firm’s policies and procedures tailored to reflect best practices, sufficient to ensure compliance with the applicable rules, regulations and laws?
  • Do the firm’s policies and procedures address, among other things, suitability of advice, avoidance of fraudulent activity, full and fair disclosure of material facts, conflicts of interest, fiduciary duties owed to clients, and best execution of fund transactions?
  • Do the firm’s compliance policies and procedures establish clear lines of responsibility for supervision, monitoring, and testing?
Are Your Disclosures and Compliance Programs Sec Compliant

Disclosure to Investors

  • Do the representations made to investors accurately and clearly disclose all material facts, including but not limited to the firm's investment strategy and related risks, fees and expenses, conflicts of interests, and performance information?
  • Does the firm consistently disclose to investors accurate and complete information in fund filings, advertisements, sales literature and other investor communications?
  • Does the firm periodically review disclosures for accuracy and completeness, no less than annually, to ensure investors have all material information available to make an informed investment decision?
Are Your Disclosures and Compliance Programs Sec Compliant

Governance Practices

  • Does the firm foster a compliance culture at all levels of the organization?
  • Do the supervisors understand their compliance responsibility?
  • Is the firm’s compliance team performing periodic, risk-based reviews that are targeted to current material risk areas, and to document the results of such testing?
How Kroll Can Help

Financial services firms' regulatory and compliance programs should be complete, effective, and designed to withstand the most stringent regulatory reviews without disrupting the business. In the U.S., a strong compliance program is particularly significant as the SEC continues its intensive investigative and enforcement efforts. The Kroll Financial Services Compliance and Regulation team has first-hand practical knowledge and experience gleaned from years of providing practical start-up and registration assistance, developing effective compliance and regulatory programs, and assisting with regulatory examinations and investigations. Contact Ken Joseph, Peter Wilson or Anna Povinelli now to discuss how we can support your compliance team.

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