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OCIE Alert Discusses Compliance Deficiencies

By Robert R. Boeche II, Esq., of Shustak Reynolds & Partners, P.C. posted on Tuesday, November 24, 2020.

Robert R. Boeche II

Robert R. Boeche II


Location: San Diego, California
Phone: (619) 696-9500 (Ext. 122)
Direct: (619) 546-5502
Email: [email protected]

The Office of Compliance Inspections and Examinations (“OCIE”) recently sent out an alert highlighting the deficiencies regarding Rule 206(4)-7 (the “Compliance Rule”), a subsection of the Investment Advisers Act of 1940 (“Advisers Act”). It is significant for advisers to understand and uphold these requirements in order to avoid compliance violations. 

The Compliance Rule has several notable requirements. First, the rule tells us that it is illegal for a registered adviser to provide investment advice unless the adviser has implemented written policies to uphold the requirements of the Advisers Act. Next, the rule requires brokers to formalize policies regarding their fiduciary and regulatory obligations under the Advisers Act. The act does not set out specifics of what should be included in these policies. However, it advises advisers to develop policies that incorporate the nature of their firm’s operations and have a system in place for any violations that may have occurred. In order to keep the policies current, the Compliance Rule also requires brokers to review these policies annually, taking into account any notable occurrences or changes. Lastly, the rule requires each broker to appoint a qualified chief compliance officer (“CCO”) as an administrator of their compliance policies.

OCIE notes that inadequate compliance resources, insufficient authority of CCOs, annual review deficiencies, inaction regarding written policies, and poorly written and inefficient policies summarize the weaknesses of parties subject to the Compliance Rule. This ineffectiveness, in turn, reveal over-arching issues of lack of accountability and oversight.  In its alert, OCIE identifies and describes these deficiencies in detail, pointing to the lack of attention in this area.

Lack of adequate compliance training and minimal resource dedication are specifically cited in the report. In addition, firm CCOs lack access and involvement in important compliance matters. This, coupled with failure to perform annual reviews and failure to promote their own policies, reveals major weakness for many advisers and their firms.

We encourage firms to review their policies no less than annually and make compliance a priority.  

Shustak Reynolds & Partners, P.C. focuses its practice on securities and financial services law and complex business disputes. 
We represent many broker-dealers, registered representatives, investment advisors, investors and businesses. 
Attorney Robert R. Boeche, II can be reached in the firm’s San Diego office at (619) 696-9500. 



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