Adviser Ordered to Hire CCO Dedicated Solely to Compliance
A registered investment adviser was ordered to hire a Chief Compliance Officer who will have no responsibility other than compliance and who will undertake at least 30 hours of compliance training, as part of a settlement of allegations of insufficient conflicts of interest disclosure and inadequate compliance. The firm and its principal also agreed to pay nearly $200,000 in penalties and disgorgement, hire an independent compliance consultant, and notify clients. The SEC charges that the firm failed to adequately disclose that it had an interest in recommending certain NTF funds for which it received a servicing fee from a custodian broker-dealer. Although the firm disclosed that it received an “administrative reimbursement” from the BD, it did not disclose that it had incentive to recommend certain funds or how it would address this conflict of interest.
OUR TAKE: A CCO should not serve in any other capacity, but, instead, should assume a degree of independence from firm operations and management. Also, the CCO must have regulatory experience and ongoing training. We believe this need for independence also requires the use of an outside compliance firm to audit the firm’s compliance policies and procedures.