In the ever-evolving financial industry, the role of the Chief Compliance Officer (CCO) has become more critical than ever. The SEC’s Office of Compliance Inspections and Examinations (OCIE) recognizes the challenges faced by CCOs, especially in the wake of the Covid-19 pandemic, and it emphasizes the importance of empowering CCOs to be effective in their roles.
This blog explores the significance of CCOs and why registered investment advisor (RIA) firms should consider appointing a designated, outsourced CCO. AdvisorLaw, a leading compliance support firm, can play a vital role in helping your RIA achieve compliance excellence.
The Impact Of Covid-19 On OCIE
According to the OCIE, it found itself needing to adapt to the challenges posed by the Covid-19 pandemic, as did many other organizations. The pandemic brought various issues and concerns for firms, requiring them to implement business continuity plans and adapt to remote work. The OCIE states that it has engaged in outreach efforts to understand the impact of Covid-19 on the industry and gather information on operational resiliency and fund liquidity.
Empowering Chief Compliance Officers
CCOs and their staff play a crucial role in ensuring compliance with securities laws and regulations. For CCOs to be effective, it is the SEC’s position that COOs require empowerment, seniority, and authority within their organization. The Compliance Rule requires each adviser to designate a CCO with full responsibility and authority to develop, implement, and enforce compliance policies and procedures. CCOs must have a position of sufficient seniority and authority within the organization to compel others to adhere to compliance standards.
Yet some firms view the CCO role as a mere “check-the-box” exercise to fulfill regulatory requirements — merely appointing someone to fulfill the rule’s mandate. However, this diminishes the potential value that CCOs can bring to a business. The SEC also provides guidance indicating that a truly effective CCO should be empowered to stand up for compliance and be supported by the firm’s management. Compensation and job security should align with the CCO’s significant responsibilities, and the SEC states that a CCO should not be made to feel one step away from termination.
The SEC wants CCOs to have direct reporting lines with senior management, or in some cases, for the CCO to even be part of senior management. The SEC believes that this will empower a CCO to address compliance weaknesses directly and report concerns to senior management, without hesitation. The SEC requires that a CCO have sufficient resources to perform her role effectively, and the compliance budget should be commensurate with the firm’s needs and business model.
By engaging expert compliance support, your firm indicates its commitment to meeting each of the above expectations and maintaining a strong system of compliance.
The Role Of Compliance Culture
The role of a strong compliance culture within a firm cannot be overstated. It serves as the foundation for consistently meeting regulatory standards and positioning the firm to operate with integrity and transparency. A compliance culture starts with senior management — who must set the tone at the top by prioritizing compliance and embedding it into the firm’s values and mission.
Moreover, a robust compliance culture contributes to building trust with clients, investors, and stakeholders. When these external parties see that compliance is a central tenet of the firm’s operations, they gain confidence in the firm’s ability to protect their interests and adhere to regulatory requirements. Trust is essential in the financial industry, and a strong compliance culture helps establish a firm as a reliable and ethical partner.
The Benefits Of Appointing An Outsourced Chief Compliance Officer
The decision to appoint an outsourced CCO can offer numerous advantages and strategic benefits for an RIA firm. Outsourcing the role of CCO allows an RIA to leverage specialized compliance expertise and resources, without the expense and commitment of hiring a full-time, in-house CCO. Let’s explore the benefits of appointing an outsourced CCO in more detail:
- Access To Expertise: Compliance is a complex and ever-changing landscape. By outsourcing the CCO role to a reputable compliance support firm, like AdvisorLaw, RIAs gain access to a team of experts who are well-versed in regulatory requirements, best practices, and industry trends. These compliance professionals bring a wealth of experience, enabling the RIA to stay updated and compliant with relevant regulations.
- Tailored Compliance Solutions: Each RIA has its own unique business model and compliance needs. An outsourced CCO can tailor compliance policies and procedures specifically to the RIA’s operations so that the firm meets all applicable regulatory requirements while aligning with its strategic objectives.
- Time & Resource Savings: Compliance can be a time-consuming and resource-intensive function. By outsourcing the CCO role, RIAs free up valuable time and resources that can be redirected toward core competencies, such as client relationship management, investment strategy, and business growth. This allows the RIA to focus on what it does best, while leaving compliance responsibilities in capable hands.
- Cost-Effective Solution: Hiring and maintaining an in-house CCO can be a significant financial investment. An outsourced CCO provides a cost-effective solution, as the RIA only pays for the compliance services that it needs, without the additional expenses associated with full-time employment, such as benefits, employment tax, and overhead costs.
- Expert Annual Reviews: Regular and comprehensive annual reviews are crucial for identifying any compliance gaps and ensuring the effectiveness of the compliance program. An outsourced CCO can conduct thorough annual and quarterly reviews — offering an objective perspective and actionable recommendations for improvement.
- Mitigating Risks: Outsourced CCOs bring a fresh and independent view to compliance oversight, helping to identify potential risks and vulnerabilities that may be overlooked internally. Your CCO can implement robust risk management strategies to proactively address compliance issues before they escalate.
- Scalability & Flexibility: As RIAs grow or experience changes in operations, their compliance needs may evolve. An outsourced CCO can easily adapt to these changes and provide scalable compliance solutions to position the firm to remain compliant — regardless of its size or complexity.
- Expert Guidance During Audits & Examinations: An experienced outsourced CCO can provide invaluable support during regulatory audits and examinations. They are well-versed in handling regulatory inquiries, gathering necessary documentation, and coordinating responses — easing the burden on the RIA during these critical events. Plus, at AdvisorLaw, each team has an attorney assigned for support and oversight.
- Peace Of Mind: Compliance is a critical aspect of any financial firm’s operations, and noncompliance can have severe consequences. By appointing an outsourced CCO, RIAs gain peace of mind, knowing that their compliance program is in the hands of skilled professionals who are dedicated to maintaining the highest standards of regulatory compliance.
AdvisorLaw’s RIA Support
AdvisorLaw offers RIAs comprehensive and customizable compliance solutions, including the option to appoint an outsourced CCO. With extensive experience in SEC and state-registered RIA compliance consulting, AdvisorLaw understands the challenges faced by RIAs in navigating the ever-changing regulatory landscape.
Through our Outsourced Chief Compliance Officer (OCCO) service, AdvisorLaw provides RIAs with a senior compliance analyst who becomes an integral part of the RIA’s team. These senior compliance analysts possess over 20 years of financial services industry experience and work closely with senior attorneys to provide the highest level of knowledge and expertise.
With the OCCO service, AdvisorLaw supports RIAs in various compliance activities, such as document reviews, form filings, marketing reviews, attestations, email and trade reviews, and compliance training for the team. During regulatory examinations, the OCCO is fully prepared and stands alongside the RIA to successfully navigate the process.
Many RIAs face the challenge of balancing compliance responsibilities with their core business objectives and client service. By outsourcing their compliance needs to AdvisorLaw, RIAs can streamline the compliance process and focus more on growing their businesses and serving their clients.
With AdvisorLaw as your outsourced CCO, you can gain peace of mind by knowing that you have a reliable compliance team supporting your success. AdvisorLaw’s OCCO service empowers RIAs to build a strong compliance culture, reduce compliance risks, and navigate the complexities of the regulatory landscape with confidence. By partnering with AdvisorLaw, you can achieve compliance excellence and stay ahead in the competitive financial industry.