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Random Friday Musings

By on February 26, 2016 in Compliance

Ahhh Friday – the perfect day for a random assortment of insights.

The violent storms that hit the Southeast and East this past week point up the need for advisers (and compliance tech companies!) to have comprehensive disaster recovery plans (DRP). Draft a DRP if you don’t already have one. Update your DRP if you do. Test your DRP at least annually. Take a page out of the Boy Scouts and be prepared.

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FAQs: Annual Review

By on February 24, 2016 in FAQs

These FAQs are part of a series of frequently asked questions that address four primary areas of interest to investment advisers:

  1. Compliance Program Components;
  2. Daily Operations;
  3. Client Protection; and
  4. Registration and Disclosure
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Custody – Inadvertent Receipt

By on February 19, 2016 in Compliance

In the post-Madoff years, custody has been the primary focus of SEC examiners. No big surprise there. After all, no SEC examiner wants to be responsible for missing the next Ponzi scheme (and there always is a next one).

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FAQs: Social Media

By on February 17, 2016 in FAQs

These FAQs are part of a series of frequently asked questions that address four primary areas of interest to investment advisers:

  1. Compliance Program Components;
  2. Daily Operations;
  3. Client Protection; and
  4. Registration and Disclosure.

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No Shortcuts

By on February 12, 2016 in Regulatory Environment

I can always tell when a big investment adviser conference has recently concluded (in this case, the TD Ameritrade National LINC conference).  How so? Because we get the wildest compliance questions from returning advisers. And the questions usually start with “I spoke to this other adviser and they [fill in the blank with some wild conjecture].”

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FAQS: Identity Theft Red Flags Rule

By on February 10, 2016 in FAQs

These FAQs are part of a series of frequently asked questions that address four primary areas of interest to investment advisers:

  1. Compliance Program Components;
  2. Daily Operations;
  3. Client Protection; and
  4. Registration and Disclosure.
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SEC to Bring Back Prohibition?

By on February 8, 2016 in Regulatory Environment

Let’s hope not, because some of the things the Commission does makes you want to reach for a bottle. But from all appearances, the SEC does appear to have an affinity for the Roaring Twenties. Take a look at the books and records rule – it still references microfilm and microfiche (which entered commercial use in the early 1920s). It seems incongruous for a government agency so concerned about 21st Century issues like social media and cybersecurity to have its books and records rule so rooted in the past. I have to admit, in the twenty plus years of helping investment advisers with compliance matters, I have never come across a firm that uses microfiche, let alone have a microfiche compliance issue. And as far as microfilm, well everyone knows that is the stuff of Cold War spy thrillers.   The SEC needs to bring the infrastructure of compliance (i.e., rules and regulations) in line with the current issues of the day.

 

 

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When is 0 greater than 36?

By on February 5, 2016 in Countdown to Launch

When zero is the number of the 36 SEC Enforcement Actions issued so far this week that you need to read. We read them all for you and none of them were relevant enough to warrant inclusion in the CCO Companion Reference Library. We’ve been making the case over and over again that investment advisers are drowning in a sea of compliance information. CCO Companion saves you hours of useless reading.

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FAQs: Books and Records

By on February 3, 2016 in FAQs

These FAQs are part of a series of frequently asked questions that address four primary areas of interest to investment advisers:

  1. Compliance Program Components;
  2. Daily Operations;
  3. Client Protection; and
  4. Registration and Disclosure.

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Sneak Peak

By on February 1, 2016 in Countdown to Launch

You have probably heard us say once or twice (okay, maybe a dozen times) over the course of the last few months that what makes CCO Companion such a fantastic compliance resource is that before a document is added to the Reference Library, it is first vetted by an experienced compliance attorney for relevance. But that doesn’t mean you have to wait around to get your hands on that information. Our compliance professionals work around the clock. To prove our point, we thought we would give you a sneak peak on the latest addition to the Reference Library – an SEC Examination Request Letter that is only five days old. That is lightning fast access to information that can certainly help your advisory firm.

Sample SEC Document Request Letter

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The SEC is Watching

By on January 29, 2016 in Regulatory Environment

The SEC’s Office of Compliance Inspections and Examinations (commonly known as OCIE) is keeping an eye on chief compliance officers. We heard of OCIE reaching out to an investment adviser that recently named a new CCO on their Form ADV Part 1. The new CCO had neglected to include their full middle name and OCIE wanted this corrected. We certainly cannot take issue with that. But clearly, OCIE’s systems are programed to flag any changes in the CCO position. Whether OCIE is doing this for good (from a CCO’s viewpoint) or nefarious reasons is purely a matter of conjecture. When coupled, however, with the overly aggressive tactics they have been using against chief compliance officers as of late, CCO’s should find this additional scrutiny is a bit unsettling.

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User’s Guide – Building an Effective Compliance Program

By on January 27, 2016 in User's Guide

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User’s Guide – Building an Effective Compliance Program

This User’s Guide is designed to help you build and maintain an effective compliance program using the resources found on CCO Companion.

Overview

Building an effective compliance program goes beyond having a compliance manual or code of ethics, although these are obviously vital components. An effective compliance program is best thought of as a process. Circular in nature, it has a distinct beginning, but no end. Each time through the cycle, imperfections are uncovered, compliance risks exposed, policies and procedures revised and your firm becomes that much closer to compliance perfection (illusive though it may be).

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6 Steps to Building an Effective Compliance Program

By on January 25, 2016 in Compliance

Building an effective compliance program goes beyond having a compliance manual or code of ethics, although these are obviously vital components. An effective compliance program is best thought of as a process. Circular in nature, it has a distinct beginning, but no end. Each time through the cycle, imperfections are uncovered, compliance risks exposed, policies and procedures revised and your firm becomes that much closer to compliance perfection (illusive though it may be).

The process of building an effective compliance program is straightforward:

Step 1:       Assess your advisory firm’s compliance risks.

Step 2:       Develop policies and procedures to mitigate those risks.

Step 3:       Determine the adequacy and effectiveness of your policies and procedures.

Step 4:       Update your risk assessment to account for all newly exposed risks.

Step 5:       Revise your policies and procedures to mitigate these new risks.

Step 6:       Repeat. Repeat. Repeat.

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Update

Updates to Reference Library (Week Ending Jan. 22, 2016)

By on January 22, 2016 in Updates

The 2016 examination priorities of the SEC’s Office of Compliance Inspections and Examinations was added to the CCO Companion Compliance Reference Library.

New areas of focus include liquidity controls, public pension advisers, product promotion, and two popular investment products – exchange-traded funds and variable annuities.  The priorities also reflect a continuing focus on protecting investors in ongoing risk areas such as cybersecurity, microcap fraud, fee selection, and reverse churning.

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Trickle Down Penalties

By on January 20, 2016 in Regulatory Environment

In a lively discussion triggered by an earlier blog post (Hogwash!), some skepticism was shown about the effectiveness of showing senior management that was reluctant to support good compliance practices the recent headlines about the CCOs of BlackRock and SFX Financial (in the former the CCO paid a $60,000 civil penalty and in the latter a $25,000 penalty). The thought was that these scare tactics would have little effect because the response would most likely be that these cases involved huge firms and professional CCOs. In other words, a world removed from the large majority of advisory firms. My response was that these trends always start off with the biggest firms, but always manage to trickle down over time. A perfect example of this is with cybersecurity. It started with the SEC examining the practices of fifty of the biggest firms, but the headline that grabbed the most attention was the $75,000 fine levied against a small (at least by SEC-registration standards) St. Louis advisory firm for violations of the Safeguards Rule. The point being is that it did not take long – only a matter of months, in fact – for the SEC to apply same standards to smaller firms as they are to the giant advisory firms.  So there is little reason to believe that the SEC will not stick to the same pattern when it comes to the targeting of chief compliance officers.

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CCO Liability & Insurance Coverage

By on January 18, 2016 in Regulatory Environment

This post is a bit far afield from what we usually discuss, but the issue was raised in response to an earlier blog post (See Compliance Officers on the Hook). A word to the wise about CCO liability and insurance coverage. Many CCOs think they are automatically covered by their firm’s D&O insurance policy. But that is typically not the case as the CCO is not considered an executive officer (the standard for most policies). You need to specifically add a rider to the policy to ensure that as chief compliance officer you are covered. Best to talk to an insurance professional about this as our level of knowledge is pretty much limited to knowing that there is an issue.

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Compliance Calendar

By on January 15, 2016 in Countdown to Launch

Coming up with a compliance calendar worthy of CCO Companion is more difficult than one would think. The problem is that it is very difficult to proclaim when an adviser you don’t know should undertake certain compliance or regulatory actions. Clearly, there are things you need to do every March (i.e., file your annual amendment) and things you need to do every November (i.e., obtain your renewal statement), but who is to say when you should have your annual compliance meeting or conduct your annual review? Moreover, there are things you need to do that have no time frame – such as when a new employee joins your firm or when a compliance violation occurs. So we are trying to arrive at the best solution – structured enough to offer value while flexible enough to be adaptable to the specifics of your advisory business.

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Hogwash!

By on January 13, 2016 in Regulatory Environment

For many years after the Compliance Rule was first passed, I used to get an earful from advisers of a certain generation about how it was all a bunch of hogwash (I think when someone uses the term “hogwash” it definitely outs them as an old-timer).  I could never come up with a response other than “well, you have to do it.” Granted, this is akin to me telling my nine-year old daughter “because I said so.” Fortunately, my response to advisers had more impact. But they still grumbled at the absolute ridiculousness of it all. And then we had Madoff and that Stanford guy down in Texas and then a slew of insider traders and all that changed. They still didn’t like compliance, but they understood the need. Now one might say I am biased because I am in the compliance profession, but when done right, compliance does serve a real purpose. But like many, many things in life (as I also tell my daughter) you get out of it what you put into it. Compliance cannot be a check-the-box activity – it must become part of the lifeblood of the firm. And that ain’t no hogwash.

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Show and Tell

By on January 11, 2016 in Countdown to Launch

By the age of five most children understand that there are two parts to this common elementary school activity and that one without the other can leave everyone in the room a bit bewildered. Based on what we hear from the compliance community, it appears that the individuals at the SEC responsible for proposing rules and establishing best practices must have been pretty lousy at this game as kids.  Either that or they were so unimaginative in what they were showing, that there was no reason to tell anything about it.

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Moon-v2

Astrology-Based Ponzi Scheme

By on January 8, 2016 in Regulatory Environment

No, really.

Part of what we are doing with CCO Companion is going back in time and reviewing old enforcement actions to see if they are fit for inclusion in the compliance Reference Library. In fact, CCO Companion currently includes cases going back to the 1940s that remain relevant to advisers’ today. And while our compliance experts have scoured the archives, sometimes we come across a publication that may reference older cases, speeches, releases, etc. that then triggers a hunt for additional relevant documents. During one such recent search, we came across the above-captioned enforcement action.

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User’s Guide – Compliance Testing

By on January 6, 2016 in User's Guide

User’s Guide – Compliance Testing

This User’s Guide is designed to help you complete your firm’s compliance testing using the resources found on CCO Companion. Given the importance of this key compliance requirement, we wanted to provide a clear roadmap for the testing process.

Overview

In its release adopting Rule 206(4)-7 (commonly referred to as the “Compliance Rule”), the SEC stated that an investment adviser’s compliance program should employ “compliance tests that analyze information over time” to determine the effectiveness of compliance policies and procedures. Accordingly, a robust compliance testing plan is an essential component of any compliance program and a key contributor to your general obligation to prevent violations of the securities laws from occurring; detecting if any such violations have occurred; and correcting any such violations that have occurred. Without rigorous, consistent compliance testing, your firm has no ability to determine if its compliance policies and procedures are effective in preventing the activities that they were designed to prevent.

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Annual Requirements Checklist

By on January 4, 2016 in Checklists

To get you off on the right foot for 2016, we are making available our annual compliance requirements checklist:

Compliance Checklist – Annual Requirements

This is just one of many of the extremely helpful checklists you can find on CCO Companion. With the launch of the app just days off, soon you will have the opportunity to access all the fantastic compliance tools and resources, including monthly compliance training material, risk identification and risk matrix templates, exam prep material, white papers and compliance testing templates.

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2016 and Beyond

By on January 1, 2016 in Countdown to Launch

A new year always brings a fresh start.

Our commitment to help chief compliance officers keep better informed about their compliance and regulatory requirements, however, remains as strong as ever. So does our desire to help them manage those requirements more efficiently. 2016 is sure to bring with it new rules, new best practices and new compliance obligations. After all, every year compliance changes, grows, and becomes more unmanageable. And there is no reason to believe that 2016 won’t also bring more of the same when it comes to aggressive SEC enforcement tactics and the targeting of chief compliance officers for compliance violations.

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Your Sword and Your Shield

By on December 30, 2015 in Countdown to Launch

When I was a mere junior associate toiling away in a law firm, a senior partner took a rare moment away from his billing obligations to explain to me that a lawyer can either be a client’s sword or their shield. This was something that has stuck with me throughout my legal career (probably because there was a certain nobility associated with it – the lawyer as a knight of the roundtable!). So when designing CCO Companion, this was very much on my mind – to create a compliance resource powerful enough to act as both a chief compliance officer’s sword and their shield. It will ultimately be up to the users of CCO Companion to judge whether that goal was achieved, but when I take a look at the wide range of tools and the depth of resources available on the app, I have to think that even our most determined critics would acknowledge the incredible utility and uniqueness of CCO Companion.

There is simply nothing else like it and nothing else that can do what it does (or does for you).

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Compliance Officers on the Hook

By on December 28, 2015 in Regulatory Environment

Certainly one of the most troubling aspects of being an advisory firm’s chief compliance officer is that you are very much on the hook for the actions of others. The larger your organization, the greater the odds that someone somewhere is violating a policy or procedure. This is not always a result of an individual taking affirmative steps to commit a misdeed. Indeed, more often than not, it is the result of firm personnel either not knowing about a policy and procedure or not understanding what a policy or procedure requires. But to the SEC and their regulatory brethren at the state level, this is a distinction without difference. The chief compliance officer will be called upon to answer for the violation and increasingly, that involves a significant regulatory sanction.

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The Gift That Keeps on Giving

By on December 25, 2015 in Countdown to Launch

After your favorite chief compliance officer grows weary with all the other gifts he or she received this holiday season, it is the perfect time to give them the gift of peace of mind. CCO Companion will be available in the Apple App Store shortly after the New Year and I guarantee you that it will be the best (professional) gift the chief compliance officer in your life ever receives.

How so?

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Do CCOs Need to be Einsteins?

By on December 23, 2015 in Countdown to Launch

When it comes to figuring out how to actually satisfy their many, many compliance requirements, the answer would be a resounding yes.

The regulators – especially the SEC – are wonderful when it comes to telling investment advisers what do to, but not so great with showing them how to do it. Anyone who has been to a CCO Outreach seminar run by the SEC knows exactly what I am talking about – the first five minutes deal with compliance issues applicable to most advisory firms while the remainder of the time focuses on the very unique compliance needs of the largest, dually-registered firms. In other words, useless to all but a select few.

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Showing Off to the SEC

By on December 21, 2015 in Countdown to Launch

I had the opportunity today to show a beta version of CCO Companion to a former senior SEC official. We spent an hour running through all its functions. Not only was she tremendously impressed, but thought it would be useful for examiners to have with them when conducting their examinations of investment advisers.

Now I ask you, if the SEC wants CCO Companion, isn’t it something that you should want as well?

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Update

Updates to Reference Library

By on December 18, 2015 in Updates

A recent (December 1, 2015) SEC Examination Request Letter from the Boston Regional Office was added to the CCO Companion Compliance Reference Library.

What makes this Examination Request Letter so interesting is that it contains a detailed request for all documents pertaining to the adviser’s Whistleblower policies and procedures pursuant to the regulations adopted under Dodd-Frank in 2011. We have not seen a request like this until now.

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Introduction to Enforcement

By on December 16, 2015 in Regulatory Environment

The Securities and Exchange Commission’s Division of Enforcement investigates possible violations of securities laws, recommends SEC action when appropriate (either in a federal court or before an administrative law judge) and negotiates settlements.

Enforcement actions are a tremendously valuable resource for determining the parameters of current law and best practices. If no-action letters typically inform an investment adviser as to what they are permitted to do, enforcement actions are a clear indication of what they may not do.

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Introduction to No-Action Letters

By on December 14, 2015 in Regulatory Environment

When an individual or entity who is not certain whether a particular product, service, or action would constitute a violation of the federal securities law, they may request a “no-action” letter from the SEC staff. Most no-action letters describe the request, analyze the particular facts and circumstances involved, discuss applicable laws and rules, and, if the SEC staff grants the request for no action, concludes that they would not recommend that the SEC take enforcement action against the requester based on the facts and representations described in the request. The no-action relief is limited to the requester and the specific facts and circumstances set forth in the request. In addition, the SEC staff reserves the right to change the positions reflected in prior no-action letters.

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The 5 Things CCOs Like Best About Compliance

By on December 11, 2015 in Regulatory Environment

We recently conducted an informal poll of chief compliance officers as to the five things they liked best about compliance.

Who knew that CCOs had such a great sense of humor?

  1. Personal Liability
  2. Increased SEC Scrutiny (see #1 above)
  3. SEC Examinations (see #1 and #2 above)
  4. Compliance Testing
  5. Reading 600+ page SEC Releases

We’ve decided to forgo our next poll – the five things CCOs disliked the most about compliance.

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User’s Guide – Risk Assessment

By on December 9, 2015 in User's Guide

CCOC_Logo_Small

This User’s Guide is designed to help you complete your firm’s risk assessment using the resources found on CCO Companion. Given the importance of this key compliance requirement, we wanted to provide a clear roadmap for the risk assessment process.

Overview

Pursuant to Advisers Act Rule 206(4)-7 (commonly known as the “Compliance Rule”), every investment adviser registered with the SEC is required to establish and maintain policies and procedures reasonably designed to prevent violations of the securities laws from occurring; detect if any such violations have occurred; and correct promptly any such violations that have occurred.

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two tied garbage bags on white background

50% of all Compliance is Rubbish

By on December 7, 2015 in Countdown to Launch

So began a conversation I had last week with a chief compliance officer of a mid-sized SEC-registered investment adviser. The question was, she continued, which fifty percent?

A fair question indeed given the sheer amount of compliance information floating around out there.

So I asked her, “wouldn’t it be nice to have an experienced compliance professional vet all that information before it reached your inbox?”

Her retort was “of course it would, but who can afford to keep someone like that on retainer 365 days a year – it would cost of tens of thousands of dollars.”

“Not true,” I said.

CCO Companion is only $299 for a six-month subscription and $499 for twelve-month subscription.

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Training Camp

By on December 4, 2015 in Countdown to Launch

According to the SEC, advisers had better make sure that they are providing their personnel with at least some annual compliance training. Because most advisers struggle with this training requirement, CCO Companion has made it easy for you to manage. We have pre-loaded the Training folder in the Tools section of CCO Companion with a year’s worth of monthly compliance training newsletters. Topics addressed are:

  • Advertising & Marketing
  • Best Execution
  • Custody
  • Fiduciary Duty
  • Identity Theft Prevention
  • Insider Trading
  • Pay-to-Play
  • Performance Advertising
  • Personal Securities Transactions
  • Portfolio Management
  • SEC Examination Process
  • Social Media

As part of CCO Companion’s regular quarterly updates, more and more training material will be added.

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Heart-v2

Getting to the Heart of the Matter

By on December 2, 2015 in Countdown to Launch

The compliance Reference Library is at the heart of CCO Companion.

Information in the Reference Library is organized in three different ways. By:

  • Compliance Topic
  • Resource Type
  • Advisers Act Rule

You can get to any one particular document in the Reference Library by using either the Compliance Topic menu selection or the Resource Type menu selection. A good analogy is plugging an address into your car’s GPS and being provided with multiple routes. Whether you go by highway or back roads, you will ultimately end up at the desired place.

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Setting You Up for Success

By on November 30, 2015 in Countdown to Launch

While the launch of CCO Companion will represent a tremendous milestone for all involved (and dare I say, for the compliance profession as a whole), we still have the presence of mind to realize that for you, our esteemed user, it is only the very beginning. In fact, while we are celebrating our accomplishment, you are probably wondering just how CCO Companion is going to deliver on its promise of helping you better understand and manage your compliance. Rest assured that in addition to spending most of our waking hours thinking about how to make CCO Companion the most useful compliance app in the industry, how a user will be able to best take advantage of its many features has also been at the forefront of our collective minds. After all, it is not all the cool features that matter, but rather, how they help you accomplish a particular compliance task or satisfy a specific regulatory requirement. Accordingly, we will be posting in this space “User Guides” that address those aspects of compliance applicable to most investment advisers.

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Fuel the Rocket

By on November 27, 2015 in Countdown to Launch

As launch date approaches, I wanted to give my sincere thanks to the hundreds of compliance professionals throughout the United States and Europe who provided their insights on the regulatory landscape as well their “wish list” of functions that should be included in the world’s first mobile compliance tool. Without their input, I doubt CCO Companion could have developed into the extraordinarily powerful compliance resource it is today.

I would also like to thank the dozens of investment advisory firms, hedge fund managers, family offices and other money managers that served as the initial proving grounds for CCO Companion. The feedback we received from these “early adopters” was invaluable. These firms integrated CCO Companion into their daily routines, pushed it to its limits and helped us build it into the highly intuitive, easy-to-use app it has become.

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