Are You Prepared? Compliance Failures Can Lead to SEC Enforcement Actions for Newly Registered Advisers

registered investment adviser SECUnder the new rules for investment advisers, advisers to private equity groups and hedge funds will be subject to the same registration requirements, regulatory oversight, and record keeping mandates that apply to registered investment advisers. This means that advisers will also be subject to enforcement actions by the SEC.

To give advisers an idea of what to expect once they are registered, it is helpful to look at several recent enforcement actions involving noncompliance, as they provide valuable insight into the SEC’s priorities for enforcement.

Compliance deficiencies of particular interest to investment advisers to private equity groups and hedge funds include the following:

  • Failure to institute a compliance program and unsupervised advisory representatives.
  • Failure to establish, maintain, and enforce a written code of ethics.
  • Failure to maintain and preserve required books and records.
  • Failure to annually review the effectiveness of written compliance policies and procedures.
  • Failure to tailor a standardized (and mass produced) compliance manual to the adviser’s specific business operations.
  • Failure to appoint an experienced Chief Compliance Officer and failure to require training and continuing education for the CCO.

Noncompliance can have serious consequences for investment advisers and their firms. The compliance issues noted above resulted in over $250,000 in fines and reimbursement for three advisory firms. In one case, the Chief Compliance Officer was forced to pay a civil monetary penalty of $50,000 after failing to perform required compliance activities.

How We Can Help Ensure Compliance

Of course, this post provides only a brief overview of the compliance issues facing advisers that manage private equity and hedge funds. Therefore, you should consult with experienced counsel to make sure your compliance program would withstand SEC scrutiny.

Eckerle Law offers a highest-quality and cost-effective alternative to the traditional law firm model for a wide variety of transactional and regulatory matters serving all your business law needs. Our experienced attorneys also provide a full range of compliance services for investment advisers, offering compliance tools that are tailored to fit the ever changing regulatory landscape as well as your business needs.

If your company would like to strengthen its business practices, please contact us today so we can leverage our experience to create real-life business and legal solutions to help your business thrive.