Compliance Programs and CCOs

The push to remote offices as a result of COVID-19 brings with it all kinds of challenges, including the need for vigilant cybersecurity, continued effectiveness with clients, staff organization and meetings, and communications. Firms would be wise to see the move to remote offices as more than a geographic challenge, but one that impacts both cybersecurity and the way they do business.

Investment advisers, funds and other financial firms face a changing business and compliance dynamic as the threat of the coronavirus – and the government and other restrictions to combat it – grow. Decisions need to be made in areas such as operations, compliance, cybersecurity and more.

The ripples from COVID-19 are many and growing. Aside from concerns about people’s health and the large and volatile stock market decline, there are ramifications affecting investment advisers, investment companies and others, with the SEC, the CFTC, the United Kingdom’s Financial Conduct Authority (FCA) and European Union regulators addressing the issues and taking actions.

Advisers and funds experienced severe downturns in the stock market this past week, primarily due to the ramifications of the growing coronavirus, which began in China and now is spreading internationally, including in the United States. Aside from concerns about client investments and employee health, compliance departments should ensure that their business continuity plans are ready to go, and stay on top of client messaging.

Chief compliance officers seeking to fill compliance staff positions traditionally seek applicants knowledgeable about the Advisers Act, good people skills and perhaps compliance experience at another firm. Those skills are still important, but CCOs today need to add another core competency to the list: familiarity with data sets,including how to read them, and how to manipulate them to see patterns.

Advisory firms nationwide continue to be highly concerned about cybersecurity, with approximately 83 percent of them naming it their highest compliance concern for the sixth year in a row. Concerns about custody compliance, however, are down from last year.

The end of 2021 may still seem some far off, but in terms of advisers and other market participants that will need to transition from the London Interbank Offered Rate (LIBOR), it may be getting uncomfortably close. The SEC staff in July issued a statement urging all market participants using LIBOR to begin the process of moving away.

With SEC examiners increasing their scrutiny of how advisory firms protect privacy, now is the time for chief compliance officers to ensure that privacy policies and procedures not only exist, but are robustly implemented. The result will not only be an advisory firm with high confidence that private information is protected, but that its firms privacy practices will pass muster the next time examiners come to visit.

Investment advisers and fund complexes have begun to move past the stage of contemplating how they will comply with the SECs Liquidity Risk Management Rule and are making key choices on issues such as classification risk responsibilities, administration of their liquidity risk management program, and more.

Branch office compliance practices have long been high on the SECs radar. Its Office of Compliance Inspections and Examinations has listed branch offices among its priorities for several years running and issued a risk alert to let advisers know what its examiners found. But ensuring compliance at branch offices, particularly new branch offices following an acquisition, takes considerable time and effort.