OCIE Risk Alert

On July 23, 2019 the Office of Compliance Inspections and Examinations (“OCIE”) published a Risk Alert sharing the staff’s observations from its examinations conducted during the Supervision Initiative launched in 2017. The initiative identified a variety of deficiencies across a range of topics relating to lack of policies and procedures dealing with oversight and disclosure issues, including undisclosed conflicts of interest dealing with disclosure of disciplinary histories and events and certain compensation arrangements, as well as delivery of such disclosures to existing and prospective clients.

While the Risk Alert describes areas of focus connected to the Supervision Initiative, it also includes more general observations related to supervision, compliance and disclosure. The staff observed that many advisers did not adopt and implement compliance policies and procedures that address the risks associated with hiring and employing individuals with prior disciplinary history, including failure to conduct and verify employee self-attestations regarding relevant disciplinary events and recent bankruptcies. Many advisers did not adequately supervise or set appropriate standards of business conduct, provide adequate oversight and adequately assess and document applicable risk areas during a firm’s annual compliance review.

OCIE made the following recommendations for advisers to consider:

  • Adopt written policies and procedures that address steps to be taken prior to hiring supervised persons, especially those with disciplinary events
  • Enhance due diligence practices associated with hiring supervised persons
  • Establish heightened supervision practices for overseeing persons with disciplinary histories
  • Adopt written policies and procedures addressing client complaints
  • Strengthen oversight of persons operating out of remote offices
  • Ensure that all written policies and procedures match actual firm practices and disclosures

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