NASAA Reports Most-Cited Regulatory Deficiencies
The North American Securities Administrators Association (NASAA), the organization of state securities regulators, has reported that state regulators have most often cited books and records violations, contract deficiencies, and Form ADV inconsistencies. The NASAA data comes from its biennial collection of 1170 examinations from 42 jurisdictions. State regulators cited books and records violations, including suitability documentation, in more than 70% of exams and contracts deficiencies (not explaining fees or no written contracts) in more than 40% of exams. ADV deficiencies (late filings, inconsistent Parts 1 and 2) were also cited more than 40% of the time. Other top deficiencies include fees that don’t align with the ADV and custody fee deductions. NASAA also provides a list of best practices.
OUR TAKE: It is noteworthy that the most-cited violations are mostly technical issues, rather than areas that have caused specific client harm. This is why firms need to hire compliance professionals (either inside or outside) to ensure tripping over the regulatory wires. The list of best practices could serve as a handy roadmap for a small firm to build a compliance program.