SEC Advises Firms to Integrate Exemptive Orders into Compliance Programs
The SEC’s Division of Investment Management has issued guidance advising firms that rely on exemptive orders to adopt compliance policies and procedures that ensure ongoing compliance with the order. The “Guidance Update” states that entities that fail to observe the conditions of an exemptive order may violate the securities laws and “the consequences of non-compliance may be severe.” To address such risk, firms should implement and test policies and procedures in accordance with the compliance rules (206(4)-7 and 38a-1) “that are reasonably designed to ensure ongoing compliance with each representation and condition of the order.” Firms may adopt specific policies and procedures or incorporate exemptive order conditions into current policies and procedures.
OUR TAKE: Firms that received exemptive relief several years ago sometimes lose track of the applicable conditions because of personnel attrition or poor document management. A new compliance officer should inventory any currently effective orders. Some of the more common orders to consider include: ETFs, Manager-of-Managers, Closed-End Funds, ESCs.