When is the Second Annual Review Due?
You adopted your compliance program on October 5, 2004. You completed your first annual review by April 5, 2006.
Here, in a nutshell, is how the deadlines will work for the upcoming annual review cycle.
If you want to keep your annual review period on an April-to-April schedule, you have two options:
Compete your next annual review by April 5, 2007;
Complete your next annual review by a "reasonable period" after April 5, 2007, say in the range of one to three months. To best understand this concept, think of the way you file your personal income taxes: Your tax year ends December 31, but the IRS gives you a few months to collect data for that 12-month period, so you donít have to file your taxes until April 15. Under the same theory, the SEC staff informally has taken the position that an adviser or fund could decide that it will wrap up the annual review after the 12-month cycle has ended, taking a reasonable period of time to look back over the entire 12-month period. Thereís no specific staff guidance on what is "reasonable," but one to three months would seem to be a good range. Six months is probably too long.
If you want to put your review period on an calendar-year basis, youíll need to do a "stub" review, covering the gap period from April 6, 2006 to December 31, 2006. Then, youíll need to decide whether to:
Compete the stub review by December 31, 2006;
Take the "tax year" approach and complete the stub review within a "reasonable period" after December 31, 2006.
When is the fund written annual report due? Is it due the same day that the annual review is completed? Or is that 60-day grace period still available?
Consider this: The written report is due on an annual basis. So, if you relied on the 60-day period for the first year, you could seem to rely on the 60-day period for subsequent years, as long as you had one written report every 12 months. If thatís too metaphysical for your taste, try on this answer for size: Yes, it looks like you can still take an extra sixty days to prepare the a fundís written annual report.
What if you concluded last yearís annual review earlier than April 5, 2006? Advisers and funds were given up to 18 months to complete their first annual review. But that didnít mean that they had to take the full 18 months to do so.
Regardless of when you concluded your first annual review, the second 12-month review cycle begins when the first cycle ended. So, if you ended up last year by December 31, 2005, your next 12 months would end December 31, 2006. An adviser or fund on that cycle could either wrap up the review on December 31, 2006 or, under the "tax-year" approach, wrap up a "reasonable period" afterward.
What if your firm or fund registered with the SEC after October 5, 2004? The compliance program ruleís 18-month transition provision applied only to advisers and funds that were registered with the SEC by October 5, 2004. Advisers and funds that registered after October 5, 2004 must have approved policies and procedures in place on the date that their SEC registration was declared effective. Upon registration, they immediately jump into their first 12-month review period. In other words, the anniversary of the firmís or fundís registration effectiveness date opens the next 12-month annual review period for the firmís or fundís review cycle.
To put this into context: Say an adviser registers with the SEC on March 1, 2006. Its first annual review cycle will end on February 28, 2007, and the annual review itself must be completed either by February 28, 2007 or, under the "tax year" approach, a "reasonable period" of time afterward.
And lastly Ö whatís the new hot topic for the upcoming annual review? In a word: Remediation. Last year you found the problems, this year, youíre going to be expected to demonstrate how you fixed them. More on remediation in an upcoming IM Insight article.