By Alex Leonard, Director, U.S.
On November 7, 2024, the U.S. Securities and Exchange Commission (SEC) held their National Seminar, part of the Compliance Outreach Program.
The Compliance Outreach Program’s mission is to inform and improve compliance throughout firms’ business operations. The program is designed to provide a forum to discuss compliance issues in a practical way, to share experiences and to learn about effective compliance practices. National Seminars cover various compliance-related issues and topics relevant for chief compliance officers (CCOs) and other senior officers of larger advisers.
This seminar included panel discussions on information security and operational resiliency, registered investment companies, private fund advisers, the Marketing Rule, registered investment advisers, and a hot topics lightning round.
Below, we summarize some key takeaways. Recordings of the panels are available on the SEC’s website.
Select panel takeaways
I. Information security and operational resiliency
- Review new Regulation S-P requirements for policy updates
- Regular employee training can reduce risk of human errors
- Level of oversight of third-party vendors depends on the service and data involved
- Firms should prepare for an ongoing focus on off-channel communications
II. Private fund adviser topics
- Difficulties of complying with the enhanced 72-hour Form PF reporting
- Performance advertising creates the most issues given its various components
- Conflicts with managing funds investing across a company’s capital structure
- Regarding disclosures: say what you do, do what you say
III. Marketing Rule
- Advisers should be prepared to substantiate the claims made in marketing materials
- Determining if a metric is “performance” can be challenging and subjective
- Advisers should consider limiting the materials made publicly available online
- Disclosures necessary to understand a statement must be clear and prominent
IV. Registered investment advisers
- Duty of loyalty and a duty of care establish expectations and standards
- Process for identification, mitigation and disclosure of conflicts is instrumental
- Determination of “material” facts necessary for disclosure can be difficult
- Thoroughly documented annual reviews are crucial for any compliance program
Conclusion
Today, while the SEC continues to examine traditional areas, they are also focused on compliance with newly effective rules, implementation of new technologies, cybersecurity issues, investments in crypto assets, and usage of artificial intelligence. Technologies that streamline operations and portfolio management, while they can increase efficiencies, also pose new challenges that advisers must vet and implement appropriate policies and procedures around.
Advisers are reminded of the importance and value of the SEC’s annual priorities, periodic risk alerts and outreach events such as this seminar. These create a roadmap for strengthening compliance and investor protection and seek to empower compliance professionals to lead discussions about enhancing compliance within their firms.
