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January 17, 2024
How 4 Little Words Will Impact Your RIA in 2024

Did you know the SEC has changed your annual compliance program requirements for 2024? The SEC did so by adding just 4 words – "and document in writing" – to the Compliance Rule.

If you are an investment adviser registered or required to be registered under section 203 of the Investment Advisers Act of 1940 (15 U.S.C. 80b–3), it shall be unlawful within the meaning of section 206 of the Act (15 U.S.C. 80b–6) for you to provide investment advice to clients unless you:

(a) Policies and procedures. Adopt and implement written policies and procedures reasonably designed to prevent violation, by you and your supervised persons, of the Act and the rules that the Commission has adopted under the Act;

(b) Annual review. Review and document in writing, no less frequently than annually, the adequacy of the policies and procedures established pursuant to this section and the effectiveness of their implementation; and

(c) Chief compliance officer. Designate an individual (who is a supervised person) responsible for administering the policies and procedures that you adopt under paragraph (a) of this section.

How can you meet this new written requirement?

  1. The written documentation requirement is intended to be "flexible".
  2. The annual review may encompass "a subset" of compliance policies and procedures.
  3. The annual review could, in fact, take the form of shorter, quarterly reviews (with the "annual review" essentially being an aggregation of such quarterly reviews).
  4. All of the following manifestations may be sufficient:
  • A long-form written report with supporting documentation;
  • Quarterly reviews, aggregated into an annual report;
  • Board or management presentations;
  • A short summary memorandum; or
  • Compilations of notes compiled over the course of the year.

All SEC-registered advisers are required to comply with the written record element of the Compliance Rule 60 days after publication of the amendment in the Federal Register (or 60 days from September 14, 2023). Whenever an adviser commences its review within the next 12 months after this compliance date, the review must be documented in writing.

 

References:

Final Rule: Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews (sec.gov)

Additional Tags: Annual Policy & Procedure Review, 206(4)-7