By Sean Wilke, Senior Managing Director, U.S.
Not too long ago, both regulators and institutional investors raised eyebrows at the idea of an outsourced chief compliance officer (OCCO) for registered investment advisers (RIAs). But the past few years have seen a dramatic shift in sentiment. Outsourcing compliance functionality saw a significant jump in 2023, with 38% of organizations opting to outsource rather than keep compliance in-house.
Today, OCCOs aren’t just accepted—they’re often preferred. The causes for this marked change are varied, ranging from advancements in tech and remote work normalization to improved outsourced solutions. The modernization of the global workforce has transformed how the industry approaches compliance leadership.
In this post, we’ll look back at how the outsourced CCO has gained so much ground and explore the benefits of outsourcing this critical function.
What makes a qualified CCO?
The Investment Advisers Act (SEC Rule 206(4)-7) outlines three straightforward requirements for who can be designated as a CCO. They must have:
- Competence and knowledge regarding Advisers Act requirements
- Authority to develop and enforce appropriate policies
- Sufficient seniority to ensure compliance across the firm
Notably absent from these requirements are stipulations on specific licensing, continuing education mandates, or prescribed industry experience. This level of flexibility paved the way for an explosion of outsourced CCO solutions, not all of which are created equal.
Why OCCO is gaining traction
Maturing compliance landscape
The compliance consulting industry has matured significantly over the past several years, with increasing consensus on best practices and clearer interpretations of rules across various investment strategies. This base of shared knowledge has created fertile ground for specialized OCCOs who provide deep expertise across multiple contexts.
Technology makes remote compliance possible
Gone are the days when CCOs had to manually review paper account statements to conduct pre-trade compliance checks. Automation and integrated systems have transformed how compliance programs operate, making the compliance function accessible across the globe. The work-from-anywhere model that accelerated during the pandemic proved out the theory that was already being floated: a CCO doesn’t need to sit on the trading floor to effectively administer a compliance program.
Institutional investors have come around
Institutional investors, usually the most scrutinizing players in the ecosystem, were among the OCCO model’s earliest supporters. Their operational due diligence processes revealed that hiring an experienced OCCO from an established consultancy often presented less risk than an inexperienced dual-hatted internal CCO with limited compliance knowledge.
Investors have also recognized that consultancies with multiple clients benefit from collective experience and typically implement their own quality controls and oversight, lending credibility to outsourcing as a preferred approach.
The benefits of outsourced CCO
For fund managers considering bringing on an OCCO, the advantages are compelling:
- Specialized expertise: Access to consultants who specialize in your specific investment strategy and regulatory environment
- Cost efficiency: An OCCO is often more economical than a full-time internal hire, especially for emerging or mid-sized managers
- Risk management: Established consultancies typically provide multiple layers of oversight and quality control
- Scalability: Resources can expand or contract based on your regulatory calendar and business needs
- Continuity: Reduced key person risk through team coverage models
OCCO is here to stay
OCCO is gaining significant momentum in the U.S., following patterns already established in other jurisdictions, such as the EU’s Alternative Investment Fund Managers (AIFMs) or third-party fund governance in the Cayman Islands.
With technology streamlining compliance execution and regulatory requirements growing more complex, the outsourced model offers a pragmatic solution that benefits managers, investors, and ultimately the marketplace at large. For RIAs looking to enhance their compliance capabilities while controlling costs, the OCCO approach may represent the most efficient path forward.
How IQ-EQ can help
We offer unmatched experience in OCCO solutions, providing:
- Senior compliance professionals with strategy-specific expertise
- Cutting-edge compliance technology and monitoring systems
- Institutional-grade oversight and governance
- Seamless integration with your existing operations
- Access to global regulatory insights across jurisdictions
Join the growing community of investment managers who’ve strengthened their compliance programs with IQ-EQ. Contact us to learn why they made the switch.
