Outsourced CCO
A Registered Investment Advisor is permitted to outsource the full function and registration of the CCO or can outsource the work and retain the responsibility. The significant difference between the two is liability and cost.
CCO Registration – In this instance, your CCO consultant is registered with your firm and assumes control and liability of your Policies and Procedures – also known as your Compliance Manual. Firms most likely to engage in this type of agreement with a consultant would be a Hedge Fund or Private Equity Fund. Wealth Management firms require a full time on-site presence due to the activity being processed by the firm. Your CCO Registered person will require all the applicable licenses to support the approved business lines.
CCO Outsource – in this scenario, the functions of the CCO are outsourced to a consultant who performs the work, prepares reports, assists with supervision, advises the firm’s Registered CCO of risks and will continuously assess resources. Your CCO will require all the applicable licenses to support the approved business lines in which he/she is responsible for supervising.
Compliance Risk Assessment
CEOs and CCOs and Principal Executives of RIA firms are responsible for the compliance programs of their firms. The CCO is responsible for the operation and effectiveness of the firm’s Compliance Program. SEC and State regulators have certain rules to help the firm’s Principals be knowledgeable in this area. SEC Rule is 206(4)-7 requires the testing of the firms Policies and Procedures. The firm must demonstrate that there are processes in place to establish, maintain, review, test and modify to achieve compliance with the applicable SEC and State Regulations.
RegMaven has designed a Compliance Risk Assessment where we “get to know your firm”. We review your Compliance Manual and the procedures you have in place, meet with CEO, CCO and senior management to understand the business, meet with compliance staff and in some cases operations to discuss their procedures. At the completion of our review and interviews we prepare a report outlining strengths and areas for improvement along with suggested tactics to strengthen the compliance program and to align with your business objectives.
Regulatory Exams and Testing
The SEC and State regulators have suggested and prescribed exams which an RIA should be following in order to create, maintain and respond to rules and regulations. RegMaven works with your compliance program and designs the required exam or test to meet your needs.
206(4)-7 Annual Testing
This rule is designed to test certain areas of risk facing the firm. In many instances, your RegMaven lead examiner may suggest areas to be tested if you have not identified any. The rule requires investment advisors to implement compliance policies and procedures designed to detect and prevent violations of Federal securities rules and to protect the interests of clients. Although this is an SEC rule many states have adopted it as well.
This rule can be completed internally by your compliance team or a third party. It is RegMaven’s position that this test be conducted by a third party at least every second year as a best practice. This will allow you to have an objective review completed which may identify areas that have been overlooked in the past.
Books & Records Exam
A books and records exam is not required by any regulatory authority – it is a best practice. RegMaven performs a complete compliance review of your books and records requirements, how you are fulfilling these requirements and what areas you may be overlooking. Your lead examiner will speak with you about the findings and create a report outlining some suggested remedies.
SEC Mock Exam
A Mock Exam is a simulation of a regulatory exam. The Exam Team will prepare a list of pre-exam documents approximately two weeks before the on-site exam. The Mock Exam is an extensive test where the team will interview staff and executives, review a large sampling of client documents, a review of financial reports, may visit branch offices and will conclude with an exit meeting followed by a report addressing all areas of risk, deficiencies and missing rules and regulations.
Specific client designed exams
RegMaven recognizes that your business may possess unique features and processes that need to or should be examined and tested. We will work with management on designing an exam program and the resulting report so that your objectives are met or exceeded.
