If you are a CCO of a registered investment adviser, ensuring your firm is meeting its regulatory filing deadlines for ADV updates is important; ensuring those filings are accurate and complete is critical. Similarly, CCOs must also ensure processes are in place to make timely amendments as needed for investment adviser representatives’ and/or registered representatives’ U4 forms.
When complaints meet the filing threshold, when a firm or a registered person is a party to certain types of litigation or when a registered person has an obligation to report a personal financial disclosure, the expectation is that the firm will promptly file all required information.
The challenge, however, is that compliance departments – those charged with actually making the required filings – don’t know what they don’t know. In spite of best efforts to ensure the accuracy and timeliness of required filings, there is always a risk that a material disclosure will be missed.
Implementing a compliance technology solution can give compliance departments more confidence in the information they’re reporting to the regulators. More importantly, doing so can limit the firm’s regulatory risk.
What’s at Stake?
Specific consequences for inaccurate or incomplete disclosures will turn on the facts and circumstances at hand. However, there is some evidence that even seemingly minor infractions can be costly.
Firms large and small, and their registered persons, are at risk of regulatory fines and sanctions when regulatory filings do not reflect required disclosures. According to the SEC, “Inaccurate, misleading, or omitted Form ADV disclosure is the most frequently cited finding from our examinations of investment advisers.”
Individual registered representatives and investment adviser representatives can find themselves in hot water too. In a review of 2016 regulatory actions, registered persons were hit with fines and even suspended from the industry for failing to make required personal financial disclosures.
Compliance Technology Can Help
Even in a firm with the most buttoned-down compliance processes, there will always be a risk that a required disclosure will be missed. Firms must rely on their registered persons’ candor when it comes to personal disclosures for representatives’ U4 forms.
However, firms can limit their risk of being seen as somehow complicit in situations where a registered person failed to disclose something. Implementing a compliance system that can document the firm’s efforts to obtain complete and timely information can show regulators that the firm had appropriate measures in place.
Using a compliance system to create, distribute and retain periodic certifications, capture information about potential conflicts of interest, manage complaints or issues, and to follow up on any anomalies or questionable answers can help firms demonstrate their commitment to compliance with the rules.
A platform with built-in workflows and integrated case management capabilities can help ensure nothing is inadvertently missed when it’s time to file an amendment to Form ADV. Furthermore, reports can be customized and generated automatically, serving as a periodic reminder to compliance personnel too.
Create Processes and Policies That Work for Your Firm
As with any type of compliance process, the way your firm manages its regulatory filing obligations should make sense based on your firm’s structure and resources.
When your compliance department’s data is captured and maintained in a system that gives you greater insights, you can have confidence that, if a required disclosure does slip through the proverbial cracks, it wasn’t due to any fault of the compliance department.