Continuing Compliance Challenges from Covid-19


As of this writing (July 1, 2020), it appears that most investment adviser firms have risen to the challenge of keeping their business operating during the first three months of the pandemic. This is a major accomplishment for which you, and all in our industry, deserve tremendous congratulations!

That said, most investment advisers are still assessing the many ways in which gyrating markets, new methods of conducting business, increased client demands, illness, absences and (sadly) layoffs have impacted every facet of their firms’ operations. This is especially true for Compliance departments, where most advisers had to update their ADV Parts 1 and 2 and all SEC-registered advisers with retail clients had to file the new ADV Part 3 while coping with the immediate effects of the pandemic.

Now that the ADV Part 3 filing deadline has passed, and as all firms are getting a better sense of the “new normal,” this is the best time to consider the impact the pandemic has had on your firm. This article will identify some COVID-related challenges you should consider in determining where you may have new, unexpected problems.

Are the right questions being asked?

Perhaps the greatest teleworking-related issue for Compliance is determining whether important questions are making their way to you. All departments should be regularly asking you these questions:

  • This procedure isn’t working – what should I do?
  • We want to try something different – does it raise any compliance issues?
  • Key people are unavailable. Which of their responsibilities can be shared among which other individuals/departments?
  • Are we continuing to focus on the right issues?

You want to be confident that all departments remain aware that they need to bring these questions to you. If you have not heard from some departments recently, that should be an indication that you need to check in with those departments more frequently.

Do you know what is happening in your firm?

Without the day-to-day, unscheduled interactions that are a fixture of office life, Compliance may be “out of sight, out of mind.” You may need to remind your colleagues that you are there and have valuable input on the decisions they are making (whether your input is welcome or not!). The following steps will keep other departments aware of your virtual presence:

  • Call colleagues for no reason
  • Continue to attend meetings of other departments as much as possible
    • If you can’t attend, have delegate call in and/or call person who attended
    • Get agenda and minutes (if available)
  • Speak up during firm-wide meetings
  • Continue regular compliance communications with staff

Are inter-department handoffs taking place efficiently?

In NRS’ experience, one of the first places that compliance problems emerge are those processes in which information and/or responsibilities are transferred from one department to another. In the current pandemic, absences of persons who perform those processes, or misunderstandings by persons who do not regularly perform these functions, can easily result in problems that you will have to help correct.

One way to prevent and detect these problems is to regularly focus on the processes through which information goes from one department to another:

  • Sales > Account Opening/Client Service
  • Client Service > Trading, Portfolio Management
  • Research > Portfolio Management
  • Portfolio Management > Trading
  • Trading > Recon
  • Etc.

By using your org chart as a guide to where these handoffs may take place, you can determine that these handoffs are (or are not) successful.

Is all required documentation being created and preserved?

“If it’s not in writing, it never happened.” That was true before the pandemic, and it is even more true now. In moving quickly to keep clients satisfied and operations flowing, it is highly likely that some documents were not created, or were not filled out completely, or have yet to be properly stored. In addition, new or improvised documents may have taken the place of forms that had been used before the pandemic but were not suitable for the current situation.

A good starting place to review your documentation is to identify all documents required by your written procedures and contact those responsible to make sure that documents are being prepared as required. If documents are not properly being used or stored, or if new documents have taken their place, determine if the procedures need to be changed.

In addition, it is a good idea to go beyond Compliance procedures and regularly remind department heads to be certain that documentation requirements in departmental or desk procedures are also being followed. If you suspect a problem, escalate to the appropriate person/committee.

Of course, these suggestions cannot cover all the situations you are facing in adjusting to these times. However, they can get you started down the path of re-assessing your compliance program in this strange new environment.

Schedule a Covid-19 compliance review to assess known and unknown compliance challenges.