Investment Adviser - Annual Review Requirement

The SEC Compliance Program Rule requires each federally registered investment adviser to review its compliance policies and procedures at least annually to determine its adequacy and the effectiveness of its implementation. In IA Release 2204, the SEC provides guidance regarding the annual review process by stating that the review process should consider any compliance matters that arose during the previous year, any changes in the business activities of the adviser or its affiliates and any changes in the Advisers Act and/or rules that might suggest a need to revise the policies or procedures. The SEC also suggests that advisers consider conducting interim reviews in response to significant compliance events, changes in business arrangements, and regulatory developments.

The first annual review must be completed no later than eighteen (18) months after an adviser has adopted and approved its compliance policies and procedures, which, for most firms, will be no later than April 5, 2006, and annually thereafter.

Rule 206(4)-7 does not specify who must conduct the review. Many firms have delegated this responsibility to the CCO while others have decided to hire an independent party to conduct all or a part of the review in order to provide “another set of eyes” in identifying actual or potential weaknesses.

The professional staff at SCA has developed an annual review program for firms that wish to outsource all or a part of the annual review function. SCA staff has significant experience in developing compliance systems and conducting regulatory audits for SEC registered investment advisers, both large and small.